Better times in store for oil marketing majors

The petroleum ministry has projected a strong year for the oil marketing companies though the largest exploration company, Oil and Natural Gas Corporation (ONGC), is projected to post a moderate gain in its bottomline.

In the outcome budget for 2007-08, the petroleum ministry has projected that Indian Oil Corporation (IOC), the country's largest refiner of crude oil and marketer of petroleum products, is expected to record a net profit of Rs 4,116.16 crore.

The net profit projection for the year ended March 31, 2006, has been revised to Rs 6,889.90 crore from the Budget estimates of only Rs 276.45 crore. IOC is projected to report 40 per cent increase in net profit in 2006-07 compared with 2005-06.

"The huge difference in the budget estimates and the revised estimates of the oil marketing companies for 2006-07 financial year is primarily because the oil bonds and upstream subsidy sharing are not included in the budget estimates," an official in the petroleum ministry said.

The government had in June last year approved oil bonds worth Rs 28,300 crore to be disbursed to the oil marketing companies as compensation for selling petrol, diesel, LPG and kerosene below market rates. Upstream companies such as ONGC and GAIL (India) also partly share the burden of the oil marketing companies. During the last financial year, oil bonds worth Rs 24,000 crore were given out to the oil marketing companies. Of this, IOC received almost 50 per cent of the bonds, while Hindustan Petroleum Corporation and Bharat Petroleum Corporation shared the other half.

Similar to IOC, the petroleum ministry projects HPCL's net profit in the last financial year to be almost three times higher at Rs 1,337.38 crore compared with Rs 405.63 crore in 2005-06. In 2007-08, the second largest oil marketer's net profit estimates stand at Rs 1,404.43 crore. This, of course is discounting the provision for oil bonds, which is likely to increase the bottom line. BPCL's net profit for 2006-07 is estimated at Rs 1,021.70 crore, 250 per cent higher than the Rs 291.65 crore in the previous financial year.