THE results of India’s three state-owned oil marketing companies (OMCs) IndianOil, BPCL and HPCL were below market expectations for the September 2009 quarter as the government did not fully compensate them for selling fuel below cost.
The three OMCs trimmed their losses substantially to just Rs 11 crore for the September quarter compared to the astronomical loss of Rs 12,891 crore they had together posted in the year-ago period.
IOC, HPCL and BPCL, which had received special oil bonds worth of Rs 20,559 crore in the September quarter last year, did not receive any bonds this September. The players were fully compensated for their under-recoveries last year despite extreme volatility, but now they will have to wait for a bailout in the second half of FY10. These companies had several things going for them during the September 2009 quarter. Firstly, retail auto fuel prices were revised upwards at the start of the quarter. Similarly, the three players booked a total of Rs 67 crore as forex gains during the quarter as against a loss of Rs 2,947 crore in the corresponding quarter of previous year. Reduced working capital requirements due to lower prices as well as lower interest rates resulted in the three companies saving nearly 58% of their interest costs or nearly Rs 1,200 crore compared to the year ago period.
IndianOil posted a small profit for the quarter mainly due to its growing petrochemicals business. For the smallest among the three — HPCL this was the fifth loss in the preceding eight quarters. The discounts extended by ONGC, OIL and Gail at Rs 3,442 crore also were lower by 76.5% y-o-y. Besides the lower discounts and non-issuance of oil bonds, the poor refining scenario hit the industry, which saw gross refining margins erode sequentially. All three companies registered a fall in margins in the September quarter vis-à-vis the June 2009 quarter. The profit of the players was also impacted due to the fall of close to 2.5% in their refinery production to a total 21.4 million tonne (MMT) for the quarter, as all three companies produced less compared to the year ago period.The future prospects of these three companies hinge on how the government decides to compensate them. All the companies have ongoing long-term capital expenditure plans and badly need visibility on future earnings for their funding.
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