Public sector oil companies are gearing up for an unpredictable mix of politics and economics in 2014-15.

With barely three weeks to go before this fiscal draws to a close, the trio of IOC, BPCL and HPCL will be hoping that there are no rude shocks in the year that follows.

“It will be the best piece of news if the new Government at the Centre does not interfere with the pricing policies that are already in place,” a senior oil industry executive told Business Line .

These essentially pertain to the gradual freeing of diesel prices, a process which has already been set in place for over a year now with monthly hikes of 50 paise.

In addition, subsidies for cooking gas have sought to be capped even while they have been lifted, clearly intended to woo voters at the elections.

“It will be a crying shame if the next Government decides to slam the brakes on further diesel price increases. Such a move will wreak havoc with our finances,” the executive added.

Diesel accounts for a substantial portion of the fuel losses incurred by the oil companies and it is precisely for this reason that the monthly marginal hikes have been set in motion.

Despite this, the losses on the fuel are over ₹6/litre which perhaps translate into nearly ₹70,000 crore annually.

Rupee worries

The other area of concern for the oil companies is the rupee especially in the context of its rollercoaster ride over the last few months. This, in turn, has fuelled diesel losses which could have been wiped out had the Indian currency stayed in the region of 55 to the US dollar.

“The rupee has had all of us spooked through a large part of this year and we can only hope that it gets stronger in the coming months,” a finance official of an oil company said.

If there are no rude shocks en route, it is very likely that diesel losses could cease by end-March 2015.

This will be a huge burden off the oil companies as they will only have to reckon with the relatively more comfortable cooking gas and kerosene subsidies.

Likewise, crude prices can throw up a nasty surprise from time to time though the crisis of 2008-09 (when they touched $150/barrel) is unlikely to be replicated.

Yet, political events like Ukraine can trigger enormous concern as they have the potential to impact global oil prices.

With investments of over ₹1,50,000 crore earmarked over the next three years, IOC, HPCL and BPCL will hope that 2014-15 starts off on a happy note.

Fuel losses are inevitable and, as in the case of this fiscal, could be upwards of ₹1,20,000 crore. Yet, a possible crisis could be averted if diesel deregulation is allowed to be on course with a strong rupee supporting the cause.

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