AFTER staying at close to $80 per barrel, oil prices have once again started to move up over the past few days on expectations of a economic rebound. Crude is now trading at close to $87 — an 18-month high. However, this could be a dampener for local stateowned oil marketing companies (OMCs) which have to sell some of their products at a below cost due to a government fiat.
Although domestic oil marketers — Indian Oil, BPCL and HPCL — are currently using crude bought at an average of $75-78 per barrel level last month, they are losing close to Rs 200 crore daily due to the subsidised pricing of petrol, diesel, kerosene and LPG. Once the impact of the current rise in crude oil prices kicks in — over the next 4-6 weeks — OMCs’ burden will rise on account of underrecoveries.
It’s, therefore, hardly surprising to note that these companies have underperformed the market even during the recent rally. Over the past 30 days, when the Sensex gained 5.5%, the stocks of Indian Oil, BPCL, HPCL lost between 4.5% and 9%.
Despite huge cash losses, these oil majors’ capital expenditure programmes are progressing unhindered, thanks to their ability to raise debt. IndianOil, for example, awarded major contracts for its upcoming 3-lakh-barrels-per-day Paradip refinery in the past couple of weeks worth at least Rs 4,800 crore. HPCL, too, awarded contracts worth nearly Rs 650 crore to upgrade its Vizag refinery.
After unveiling a well-thought out subsidy-sharing plan for FY09, the government is yet to work out a similar plan for FY10-11. In fact, after having issued Rs 1,40,000 crore worth of oil bonds between FY06 and FY09, the government chose to pay its share of subsidies at Rs 12,000 crore in cash to oil marketing companies for FY10. Although the Kirit Parikh Committee recommending deregulation of petroleum product prices, the government is yet to act on it. Despite their low valuations, oil marketing companies may not be attractive to investors unless the government acts on the issue of underrecoveries.
Although domestic oil marketers — Indian Oil, BPCL and HPCL — are currently using crude bought at an average of $75-78 per barrel level last month, they are losing close to Rs 200 crore daily due to the subsidised pricing of petrol, diesel, kerosene and LPG. Once the impact of the current rise in crude oil prices kicks in — over the next 4-6 weeks — OMCs’ burden will rise on account of underrecoveries.
It’s, therefore, hardly surprising to note that these companies have underperformed the market even during the recent rally. Over the past 30 days, when the Sensex gained 5.5%, the stocks of Indian Oil, BPCL, HPCL lost between 4.5% and 9%.
Despite huge cash losses, these oil majors’ capital expenditure programmes are progressing unhindered, thanks to their ability to raise debt. IndianOil, for example, awarded major contracts for its upcoming 3-lakh-barrels-per-day Paradip refinery in the past couple of weeks worth at least Rs 4,800 crore. HPCL, too, awarded contracts worth nearly Rs 650 crore to upgrade its Vizag refinery.
After unveiling a well-thought out subsidy-sharing plan for FY09, the government is yet to work out a similar plan for FY10-11. In fact, after having issued Rs 1,40,000 crore worth of oil bonds between FY06 and FY09, the government chose to pay its share of subsidies at Rs 12,000 crore in cash to oil marketing companies for FY10. Although the Kirit Parikh Committee recommending deregulation of petroleum product prices, the government is yet to act on it. Despite their low valuations, oil marketing companies may not be attractive to investors unless the government acts on the issue of underrecoveries.
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