It has been yet another wobbly fiscal for the public sector oil refining companies. As has been the case in recent years, the Government has thrown them a last minute lifeline while ensuring that the upstream oil companies also do their bit by way of a higher compensation package.
In terms of numbers, the trio of IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation ran up fuel losses of a little over Rs 148,000 crore for 2011-12. The Government has chipped in with Rs 83,000 crore while the ONGC-led upstream combine will make good Rs 55,000 crore.
The refiners have now ended up absorbing the balance Rs 10,000 crore, which largely comprises losses on petrol (prices of which have not been revised for some months now) and interest on borrowings. The companies will declare their yearly results in the coming days with BPCL the first to kick off the exercise on Friday.
‘Politics over economics'
It is now crystal clear that fuel prices will have to be hiked quickly, especially when losses for this fiscal are expected to be over Rs 200,000 crore. The Government has earmarked Rs 44,000 crore as its subsidy but this will end up being over three times as much, going by its experience in 2011-12. At that time, the sum projected was around Rs 24,000 crore but the actual outgo ended up being Rs 83,000 crore.
From the refiners' point of view, it is galling that they have not been allowed to increase petrol prices though, on paper, it is a deregulated fuel. “Politics always prevails over economics and this is especially apparent in the case of petrol, where we have had to take a hit of nearly Rs 5,000 crore for 2011-12,” an oil sector official told Business Line .
All indications are that a petrol price hike of Rs 5/litre is inevitable which will still leave an uncovered portion of Rs 3. However, the bigger concern is diesel (where IOC, BPCL and HPCL are losing Rs 15/litre) which accounts for nearly 60 per cent of the total fuel losses. Likewise, a price increase of Rs 50 (per cylinder) in cooking gas is also imminent.
Huge debt burden
“There is really no way out especially when States have made it clear that they will not reduce sales tax on petrol and diesel. Goa was the exception but, then, it gets considerable revenue from tourism,” the official added. Fuel losses for the first two months of this fiscal are inching towards Rs 35,000 crore and the Government will have no option but to hike prices immediately.
Any delay will only hurt the oil companies, which are already reeling under a severe debt burden. The combined borrowings of IOC, HPCL and BPCL are over Rs 135,000 crore and it is a near certainty that they will have to absorb the interest burden on this gigantic sum.
It is not as if their upstream counterparts are having it any easier. As per the original formula ONGC, along with Oil India and Gail, would only have to bear a third of the refiners' losses by way of discounts on crude and products. For 2011-12, their outgo will be nearly 40 per cent at a time when they are already grappling with a higher cess on crude oil.