Global crude oil prices, which are hovering around the $80 per barrel-mark, may not have an immediate impact on public sector oil marketing companies (OMCs) in India but a lack of clarity on the quantum of cash subsidies the government plans to give to these companies is likely to dent OMC stocks, say analysts.
On December 31, 2009, crude oil for February 2010 delivery rose 8 cents to $79.36 a barrel on the New York Mercantile Exchange, the highest settlement price since November 18. Oil is poised for its biggest-ever gain in a decade, after sliding to a five-year low of under $33 at the start of 2009.
The government has not yet indicated any rise in retail fuel prices in the wake of global fuel price hike, even as OMCs continue to be burdened by huge under-recoveries on the sale of petroleum products. Indian Oil, HPCL and BPCL are likely to lose Rs 45,478 crore in FY 2009-10 on selling fuel below cost, petroleum minister Murli Deora recently told Parliament. These OMCs incur an under-recovery of Rs 3.10 per litre on petrol, Rs 2.55 a litre on diesel, Rs 17.30 per litre on PDS kerosene and Rs 241 on each 14.2 kg cylinder of domestic LPG. The petroleum ministry has sought oil bonds of Rs 20,871 crore from the finance ministry to compensate the three firms for loss on kerosene and LPG, but bonds are yet to be issued, he said.
The government had indicated on December 22 that it is considering giving cash subsidy instead of oil bonds to OMCs towards their cooking fuel losses, but analysts say there needs to be more clarity on this. Nilesh Banerjee and Nishant Baranwal of Goldman Sachs India said in a recent report that they believed the government move is ?premature at this point and could lead to disappointment since the government has not clarified how much subsidy would be given to OMCs and also whether this applies to FY11E as well.?
The underrecoveries have hit PSU firms real hard. In the second quarter ended September 30, IOC reported a profit of just Rs 284 crore while BPCL and HPCL reported losses of Rs 159 crore and Rs 137 crore respectively. Says Sanket Singh, an analyst with Frost & Sullivan, ?BPCL and HPCL will be impacted more than IOC, since they have less refining assets than the latter.?
?The real question is, who is going to share the under-recoveries. The government has put forward a formula, but it is still not clear who will take the burden,? said Deepak Pareek, an analyst with Angel Broking. IOC shares were down 0.20% on the BSE on Thursday to close at Rs 306.30, while BPCL shares closed at Rs 632.80, up 2.2%.
HPCL shares were up 0.88% to close at Rs 390.70.
Oil firms are keeping their fingers crossed on the compensation front. Indian Oil CMD S Behuria has reportedly said the company has not received any oil bonds this year. IOC has under-recoveries to the tune of Rs 19,000 crore this financial year, he added.