With crude oil prices moving upwards of $90 a barrel and the US dollar set to stage a strong rally, IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation could end up incurring fuel losses of over Rs 1,00,000 crore in 2011-12.
This will mark a 35 per cent jump from the current fiscal's projected losses of Rs 75,000 crore.
The biggest worry is that the rupee is expected to remain at around Rs 47 against the US dollar through 2011-12. In the process, fuel losses will be at par with 2008-09 levels when they had touched Rs 1,03,000 crore.
?Even though crude had even touched $147 per barrel then, the rupee was at a more manageable Rs 42 to a dollar. Today, all the signals coming in from bankers indicate that the dollar will be a lot stronger next fiscal,? an oil sector executive told
All this will be bad news to upstream oil companies such as the Oil and Natural Gas Corporation which make good one-third the refiners' fuel losses as part of the compensation formula. In the process, along with GAIL and Oil India, ONGC will cough up closer to Rs 35,000 crore in 2011-12, a big jump from this fiscal's estimated outgo of Rs 25,000 crore.
Incidentally, the upstream companies squared up over Rs 32,000 crore of the refiners' losses in 2008-09.
Subsidy sharing
In fact, this subsidy sharing mechanism has been an irritant for ONGC whose forthcoming public offer (FPO) is scheduled to take place by end-March.
?Investors are not going to be jumping for joy at the prospects of their company taking on a heavier subsidy bill in the future,? an oil industry official said.
The Centre is clearly running out of options in formulating a cohesive compensation package for IOC, BPCL and HPCL. This fiscal has seen the upstream companies bearing a third of their losses while in 2009-10, it was decreed that they would only chip in for petrol and diesel losses. It is likely that the one-third formula will be put in place for 2011-12 too.
Though the Finance Ministry has made vocal its reluctance to stretch its wallet in compensating the refiners, it really has little choice in the matter.
?A fuel price hike would be the best alternative but in today's context of food inflation, the Centre is no mood to oblige,? oil industry sources said.
The biggest losers are the refiners which end up waiting for a compensation package each quarter while their borrowings increase by the hour.
For the next five years, IOC, HPCL and BPCL have earmarked investments of over Rs 1,50,000 crore in refineries, pipelines, bottling plants and terminals. This can be done only if they generate substantial profits.