Public sector oil refining companies lose on subsidy

Refiners lose Rs 70,000 cr on fuel subsidies since 2004-05

The Centre's compensation formula for losses incurred on subsidised
fuels has cost the public sector oil refining companies dearly over
the last few years. Since 2004-05, IndianOil, Hindustan Petroleum
Corporation and Bharat Petroleum have cumulatively lost over Rs 70,000
crore on sale of petrol, diesel, kerosene and cooking gas. This is
because, barring 2008-09, their losses have never been squared up in
full. In addition, the companies generally lost out on selling oil
bonds in the open market. Simply put, had the dues been settled in
full since 2004-05, the trio would have been in a stronger financial
position unlike the present where their combined borrowings are in
excess of Rs 110,000 crore.

Compensation arbitrary
"For the last six years, the compensation has been arbitrary with 75
per cent levels during one year or a little over 80 per cent in
another. There was no compelling reason for the Centre to stretch
itself since crude prices were relatively benign and the three
companies were making profits," an oil sector official told Business
Line. It was for the first time in 2008-09, when crude touched $147 a
barrel and threatened to put IOC, HPCL and BPCL on the mat, did the
gravity of the situation sink home. Even here, the damage had already
been done because the oil bonds were issued into the end of the third
quarter when the companies were losing over Rs 500 crore daily at the
peak of the crisis. The bonds and support from the upstream sector
helped IOC, HPCL and BPCL report profits for 2008-09. "It was still
gut wrenching to think that top navratnas were scraping the bottom of
the barrel thanks to the fuel subsidies and the delay in making good
the losses," the official said.
Tunnel still dark
Little wonder, therefore, that the top management of these companies
is not too hopeful of anything dramatic happening for 2009-10. What is
worrying them is the prospect of absorbing a part of the Rs
19,000-crore still due from the Centre for losses incurred on LPG and
kerosene. The Finance Ministry has already paid Rs 12,000 crore in
cash for the third quarter of last fiscal, which helped the three
companies post profits. The general consensus is that the next outgo
will be less than this sum, which means the balance would come from
the upstream oil companies. IOC, HPCL and BPCL may then just have to
write off a part of the balance. The refining trio may have made some
gains on crude inventories but are reportedly hard-pressed to find
other positives for 2009-10. They are, in any case, expected to post
combined net losses of nearly Rs 10,000 crore in the fourth quarter,
which could wipe out the gains made in the first nine months of the
fiscal.
Source:
Murali Gopalan…in the HINDU BUSINESS LINE