Fortune 500 oil firms in sight of sickness

Four oil marketing companies posted net loss of Rs 1,227cr in Q1FY06.

With state-owned oil companies collectively incurring losses to the tune of Rs 140 crore a day, the petroleum ministry fears they can start turning sick from the next month unless the prices of petroleum products are raised immediately.

Petroleum Secretary SC Tripathi has written to Cabinet Secretary BK Chaturvedi saying that at the current rate, IBP will turn sick next month, followed by BPCL in 13 months and HPCL in 20 months.

Indian Oil Corporation would be sick in 35 months from now if petrol, diesel, LPG and kerosene prices were not changed in line with the rising international crude oil prices, the letter said.

Petroleum Minister Mani Shankar Aiyar said his ministry had moved a Cabinet note on this. The ministry has proposed a mix of duty cuts and an increase in the prices of petrol and diesel.

A company needs to inform the Board for Industrial and Financial Reconstruction, which deals with all cases of industrial sickness, once its net worth is eroded by half. Once the net worth is fully eroded, the company becomes a BIFR case.

IBP, for instance, had a net worth of Rs 324 crore on June 30, 2005. The company has reported a loss of Rs 233.97 crore in July. The total losses have wiped out its net worth.

Indian Oil, HPCL and BPCL are all Fortune 500 companies and are reporting under-recoveries of Rs 3.63 on every litre of petrol they sell while diesel is under-priced by Rs 4.15 a litre. LPG is being sold at a loss of Rs 92 per cylinder and the public sector oil firms are losing Rs 11 on the sale of every litre of kerosene.

As these companies make a case for an upward revision in petroleum prices, the Indian basket of crude oil continues to rise. It touched an all-time high of $58.83 a barrel today, while global crude prices held near a record high of $64 a barrel.

Playing down the fears, Aiyar said, "I am worried but not too worried. The government has resources (foreign exchange) to manage our requirements."

The four oil marketing companies posted net losses of Rs 1,227 crore during the April-June 2005 quarter. They suffered a cash loss of Rs 1,500 crore in July alone due to the freeze on fuel prices.