Oil companies stare at losses on petrol, LPG

Unkindest cut: Kerosene loses Rs 12 a litrePetrol on the vergeOnly diesel makes a profit of Rs 3.26/litre

http://www.thehindubusinessline.com/2009/02/19/stories/2009021950190500.htm


Murali Gopalan Mumbai, Feb. 18 Barely weeks after the Centre slashed prices of petrol, diesel and liquefied petroleum gas (LPG), the public sector trio of Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) are now facing the possibility of another round of losses on the retail side. For the fortnight beginning February 16, the estimated profit on petrol has tumbled to 5 paise a litre while it is a lot healthier in the case of diesel at Rs 3.26/litre. Losses on LPG (or cooking gas) are mounting steadily to Rs 79 a cylinder and on kerosene to Rs 12 a litre.Set to get worse “By the next fortnight, we will begin making losses on petrol too while the figure on LPG could rise sharply as global prices are beginning to firm up. “The silver lining in the cloud is diesel but consumption in India has seen a drastic reduction lately which means we cannot capitalise on this gain either,” top oil industry sources told Business Line. Compare this with the scenario in early January when IOC, HPCL and BPCL were making profits of nearly Rs 10/litre on petrol and a little over Rs 3 on diesel. Prior to this, in December last year, profits on petrol were close to Rs 15 while it was Rs 5 on diesel. It explains why the Centre went in for successive price cuts in December and January to the tune of Rs 5 and Rs 2 each time.What was puzzling, though not entirely surprising given that this is election time, was the move to cut LPG prices. The three oil companies were already losing close to Rs 33 per cylinder before the announcement, which consequently went up to Rs 58 and is today inching towards Rs 80. “We are worried about LPG and, going by global price trends, losses could cross Rs 100 a cylinder within a month,” sources said. Losses on LPG were close to Rs 150 (a cylinder) in early December and twice as much in the preceding months when the oil price crisis was spinning rapidly out of control. This was the time when some of the companies were contemplating freezing fresh connections for households. Oil industry executives are puzzled by the Centre’s alacrity when it comes to price cuts. “Six months ago, we were reporting losses of Rs 550 crore daily and were on the verge of bankruptcy. When crude prices fell and we had begun breathing again, the tinkering began on petrol and diesel. Today, we are back to square one though the losses may not be as heavy,” they say. According to them, this is the best time to deregulate prices of petrol and diesel while the under-recoveries on LPG and kerosene can be transferred to the Union Budget. The Nirmal Singh Committee report on oil reforms tabled a decade ago had recommended freeing of prices by 2002 but successive governments dithered on the proposal for fear of antagonising the voter. It is only too obvious, experts aver, that the oil companies should become the “fall guys” in an election year. “There is no guarantee that crude prices will stay at this depressed level of $35/barrel forever as much as nobody expected them to crash so rapidly from $147 in mid-2008,” they say. However, the damage has been done and IOC, BPCL and HPCL may end up reporting their first ever net losses for an entire fiscal in 2008-09. They have sought nearly Rs 15,000 crore, in addition to the oil bonds, to make up for losses incurred and this estimate may go up further if the price movements in the fourth quarter are any indication. The question this: will the Centre comply?