IOC will lose additional Rs 220 cr over last year

Pratim Ranjan Bose

Kolkata, June 7

The transition from the import parity price regime to trade parity and cut in customs duty will negatively impact the gross refining margins (GRM) of refiners by $1.7 per barrel. Since the refineries had offered a 40 per cent discount on the import and export parity differential resulting in a discount of $1.5 a barrel last year, the net impact on the GRM of oil marketing companies was estimated to be 20 cents per barrel for this financial year.

According to sources, some initial estimates suggest that IOC will lose an additional Rs 220 crore over last year, due to incremental discount of 20 cents per barrel on GRM. HPCL and BPCL are expected to lose an additional Rs 70 crore each.

Given that the price hike, subsidy sharing by upstream companies and interest bearing bonds will not fully cover the revenue loss if crude prices continue to be the same, the increased discounts may put pressure on the balance sheet of especially HPCL and BPCL, which have limited scope in generating resources other than operations.

Both the companies recorded very low GRMs last year compared to IOC.

While BPCL posted a GRM of $2.2 per barrel from its sole refinery at Mumbai, HPCL's refineries at Mumbai and Visakhapatnam recorded GRMs of $2.8 and $3.22 respectively. On the contrary, IOC registered an average GRM of $4.62 per barrel.

The GRMs recorded by the PSUs look extremely inadequate when compared to Reliance, which posted a GRM of over $10 last year.

While both BPCL and HPCL blame a host of quality upgradation and de-bottlenecking undertaken at the refineries last year for the thin GRMs, sources point out that since both these refiners have limited flexibility in using heavier and cheaper crude, the spike in crude prices, if continues, would add pressure on refining margins and higher discounts may simply squeeze it further.

HPCL and BPCL also face additional pressure on margins compared to IOC, due to lack of pipeline network and higher freight charges.

(This article was published in the Business Line print edition dated June 8, 2006)
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