Q2 may be gloomy for PSU oil firms

The government-owned oil marketing companies are in for a poor showing in the second quarter (ending September 30) of the current financial year as the government will not issue any oil bonds until December to compensate these companies for the losses incurred by selling petroleum products at subsidised prices.

The three oil marketing companies, Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL), are currently losing around Rs 180 crore a day.

The issue of oil bonds, which the government gives to the three oil marketing companies to partly compensate them for their retail revenue losses, was not mentioned in the supplementary demand for grants tabled in Parliament today. "This means there will be no bonds until the next session in December," said a senior petroleum ministry official.

As the amount of oil bonds is not provided for in the annual budget, the government needs Parliamentary approval for them.

Last week, a top oil ministry official had said the ministry has written to Finance Minister P Chidambaram seeking around Rs 20,000 crore of oil bonds for the current financial year. In the last financial year, the government issued bonds worth Rs 24,121 crore in three tranches to the oil marketing companies.

"This is definitely going to put pressure on liquidity as the burden of under-recoveries rises. We need the oil bonds to meet working capital requirements," said a senior official with Bharat Petroleum Corporation (BPCL). Without giving out numbers, the official said that the company's borrowings might increase to meet its working capital needs.

The three companies are together expected to post losses of around Rs 55,000 crore during the current financial year from selling petrol, diesel, kerosene and LPG at subsidised prices.

For the first quarter ended June, IOC and BPCL posted higher net profits in spite of the absence of oil bonds. In the corresponding first quarter of the last financial year, the companies did not receive any oil bonds either.

The higher profits by the two companies were primarily due to the rupee appreciating by more than 8 per cent against the dollar, which helped the companies as they also buy crude oil from overseas markets in dollars.

BPCL also sold some oil bonds outstanding in the last quarter, which helped boost its bottom line. HPCL, however, continued to be in the red in the first quarter as well.

"We are waiting to see what the government's overall gameplan is. They have managed to handle the situation in the last couple of years and hopefully will do the same this year as well," a senior HPCL official said.

He added that the recent dip in crude oil prices had somewhat helped the company, but the daily revenue losses were still almost Rs 40 crore.

The bottom line of these companies is being adversely affected as the government has not increased retail prices of petrol and diesel since February despite crude oil prices touching an all-time high in July. A fuel price hike is unlikely to come through until the monsoon session of Parliament concludes on September 14.

A Delhi-based analyst said even if auto fuel prices was hiked in September the impact on profits would be marginal. Currently, IOC, the country's largest marketer of petroleum products, is losing Rs 5.90 per litre of petrol it sells. The loss on diesel is Rs 4.90 a litre.