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The trio of IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation will have to wait till the second quarter of this fiscal to reap the benefits of the recent fuel price hike.
The Centre had increased prices of diesel, cooking gas and kerosene in end-June along with some duty cuts. However, this has hardly helped the oil companies' cause for the first quarter when combined net losses are projected to be nearly Rs 20,000 crore.
Top sources told Business Line that the losses incurred on diesel, cooking gas and kerosene (as a result of subsidies) for the April-June period were nearly Rs 35,000 crore.
Applying last fiscal's compensation formula, the upstream combine of Oil and Natural Gas Corporation, Oil India and GAIL would make good a third of these losses.
Of the balance Rs 23,400 crore, a little over Rs 5,000 crore gains may be made from forex, crude inventories and so on.
Eventually, the three refiners are tipped to post net losses of Rs 18,000 crore, of which, IOC would account for over half this figure with BPCL and HPCL taking up the balance.
“It is going to be among the heaviest net losses posted by the three companies in any quarter,” an oil industry official said. However, the good news is that Q2 will see these fuel losses down by nearly 60 per cent as a result of the price hikes.
Current estimates are that they would be in the region of Rs 15,000 crore (against Rs 35,000 crore in April-June) of which the upstream trio will bear Rs 5,000 crore as part of the subsidy-sharing formula.
As has been the case in the past, the Finance Ministry will end up settling a large part of the dues with IOC, HPCL and BPCL.
These companies are hopeful, though, that a long-term solution will soon be worked out in terms of eliminating subsidies for cooking gas and diesel.
Potential investors
It is also obvious that ONGC and its upstream allies cannot hope to get away from the present subsidy-sharing formula.
“There is really no option unless the Finance Ministry wants to bear the entire burden,” the executive said.
Hence, potential investors of ONGC's FPO (follow-on public offer) will be aware that the company has no choice but to bear a third of its refining counterparts' fuel losses.
The script could turn awry if there is a sudden spurt in crude prices but as sources say, this is unlikely given the fragile state of the world economy, especially Europe and the US.
From India's point of view, though, a quick solution lies in eliminating subsidies for the affluent and ensuring that only the needy get them.
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