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It is bad enough that the trio of IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are staring at fuel losses of over Rs 140,000 crore this fiscal. They now have an added burden to contend with in the form of petrol whose prices were cut last November.
“Since then, petrol losses have been mounting and we expect them to be over Rs 7,000 crore for 2011-12. A price hike will obviously help but we do not see this happening in the short-term,” an oil sector official told Business Line .
IOC, HPCL and BPCL are losing over Rs 5 a litre on petrol and while, on paper, they have the freedom to handle its pricing, reality is something else.
“It is no secret that their owner, the Government, has the last word on the subject and will be in no mood to comply especially with the elections in Uttar Pradesh and Punjab now under way,” an industry veteran said.
In the process, the refiners end up absorbing petrol losses as they are not part of the compensation package which extends to diesel, cooking gas and kerosene.
They already accounted for over Rs 2,000 crore in the first quarter of this fiscal and will now end up with another Rs 5,000 crore for the November-March period.
“It is almost ridiculous to think that we are losing money on a fuel whose pricing is market-determined. It makes a complete mockery of price deregulation,” the official added. This is happening at a time when combined borrowings of IOC, HPCL and BPCL are well over Rs 130,000 crore.
Interest burden
The consequent interest burden is around Rs 10,000 crore for the trio which, like petrol losses, will just have to be written off.
As a result, the refiners will be in no position to absorb a part of the losses incurred on diesel, cooking gas and kerosene which has been the practice in recent years.
Typically, the upstream oil companies, led by the Oil and Natural Gas Corporation, account for a third while the Government makes good nearly 55 per cent of the losses. The refiners end up with the balance 10 per cent.
This time around, it looks as if ONGC and its allies (Oil India and Gail India) may end up bearing 40 per cent of the losses if the Government wants to limit its compensation outgo.
If this happens, it will only end up derailing ONGC's Rs 12,000-crore FPO (follow-on public offer) as investors will naturally be concerned about this arbitrary subsidy sharing formula.
As for IOC, BPCL and HPCL, it is going to be another difficult fiscal where the last-minute compensation package hardly makes up for the difficulties encountered through the year.
The refiners have earmarked investments of over Rs 200,000 crore till 2016 and just cannot afford to put any of them on hold.
The good thing is that the trio ends up with a lifeline eventually since posting profits is paramount by the end of the day, however meagre they may be.
One year of losses is enough to severely impact their standing and ability to access funds both here and abroad.
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