Oil subsidies force BPCL to shelve Rs 6000 cr expansion

Company says only 50% hike in petroleum prices will help it break even.

Bharat Petroleum Corporation (BPCL) has put on hold its Rs 6,000 crore expansion-cum-infrastrcutre development plan owing to an unfavourable pricing scenario.

The corporation had envisaged an expansion in the number of retail outlets for both oil and gas along with a corresponding increase in the number of filling stations all across the country, in a span of five years, with a total investment capital of Rs 6,000 crore.

However, the corporation has now decided to postpone the project implementation indefinitely in the wake of an adverse financial condition fuelled by the losses suffered in third quarter, said a senior BPCL executive.

"Unless the government revises the price of petroleum products, the PSU will not be in a position to balance its cost and revenue. Currently, with the prevailing retail price, BPCL is incurring huge losses on each product," he added.

He added that the company would anticipate at least 50 per cent hike in petroleum prices to match the sourcing price with the international price on the retail products to break even.

"If that does not work out, the oil marketing companies under government control would not be in a position to expand operations. Rather it would prefer to reduce the sales to minimise losses," he added.

Currently, BPCL has around 45 filling stations for LPG and the company planned to increase the number to over 100 in a span of five years to take care of the logistics.

The Corporation had also proposed to more than double the number of retail outlets across the country along with many other market upgradation activities to handle the current competitive market situation.

However, unless the the retail prices are revised to the cost plus level, it will become almost impossible for oil marketing companies to go ahead with its expansion activities, sources said.

BPCL has already undertaken several cost cutting measures within the company and has also reduced the advertisement and promotional costs.

"But this is not enough to drive the profits of the company," sources added.

BPCL had posted a net loss of Rs 1024.2 crore in the third quarter ended December 31, 2005 as against Rs 1,024 crore registered in the previous year.

Sales stood at Rs 18,853.40 crore (Rs 16,567 crore). In the nine-month period, it earned Rs 51,076.80 crore via petroleum products sales.