Oil marketing companies (OMCs) — IndianOil, Bharat Petroleum and Hindustan Petroleum — are likely to borrow more, as the Indian basket of crude touched $100.85 a barrel, the highest in this financial year, on Thursday. They need to borrow Rs 5,000 crore more per month to continue their operations since government subsidy comes after a lag.
The Indian basket represents published freight on board prices of average of Oman/Dubai crude for sour grade and Brent for sweet grade in the ratio of 67.6:32.4. The West Texas Index crude price, around $15 cheaper to the Indian basket, is not factored.
OMCs, which purchase crude oil at market rates, are required to sell diesel, kerosene and liquefied petroleum gas (LPG) at government-subsidised prices, resulting in losses. These losses are usually compensated through a mix of cash subsidy from the government and discounts from upstream companies like Oil and Natural Gas Corporation and Oil India.
OMCs lose Rs 10.74 per litre on diesel, Rs 20.56 per litre on kerosene and Rs 356 for every 14.2-kg LPG cylinder. Petrol price was decontrolled from June 26, 2010. Still, the companies incur a loss of over Rs 2 per litre as they have not been able to pass on the entire price hike. Since it has been decontrolled, any loss on petrol will not be compensated. For this financial year, the gross underrecovery of OMCs is estimated at over Rs 75,000 crore.
“Our performance will not be affected, if the government compensates the losses. However, at current levels of crude price, our borrowing can go up by Rs 3,000 crore every month,” said S V Narasimhan, chairman and managing director, IndianOil, the biggest oil marketer. Narasimhan, also director (finance), hopes the situation is temporary and will change with global geo-political environment. The company’s borrowing at the end of the third quarter was Rs 50,724 crore.
B Mukherjee, director (finance) at Hindustan Petroleum, said monthly borrowing will go up by Rs 1,000-1,200 crore from the current level of around Rs 24,000 crore. Bharat Petroleum’s borrowing, according to Finance Director S K Joshi, is expected to be higher by Rs 1,000 crore from the current level of Rs 20,000-21,000 crore.