IBP Oil set to post loss

IBP Oil company is going to post loss, an almost unknown occurrence among PSU oil marketing companies, for the first quarter of this fiscal due to under recovery in petrol and diesel prices as the NDA government kept domestic retail prices under 'control' even as crude oil prices in the global market rose to 21 year high.

The Indian Oil Corporation (IOC) subsidiary is expected to post net loss Rs 30-40 crore during April-June quarter as compared to Rs 12.24 crore profit in the corresponding period last year.

Even as the new UPA government allowed a marginal increase of Rs 2 for petrol and Re 1 for diesel from June 16, the average loss, taking the entire three month period, comes to Re 1 for petrol and Rs 0.50 for diesel.

Although all oil marketing companies (OMCs) had bear the brunt of under recovery, it hurt IBP most as it is the only pure marketing company. All three other oil majors IOC, Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) would post lower profit as well.

However, as they are vertically integrated with refining chain, the loss in marketing division would be partly compensated by higher refining margin and inventory gain.

The last quarter was worst for the oil marketing sector as the earlier government denied any rise in retail prices in the run up to the general election in April-May.

The WTI crude prices peaked $42 a barrel and it remained at $40 on average during the period on middle east uncertainties. For every dollar rise a barrel, OMCs had to pay Rs 1.5 per liter extra but government did not allow increase.

IBP's balance sheet would have looked even worse had their been high sales of domestic LPG and PDS kerosene.

Unlike other OMCs, IBP's LPG and SKO consumer base is much smaller. Thus the company did not have to account for large under recovery in these two petro product.

During this quarter (July-September) itself, OMCs are facing 24 paisa and 7 paisa extra burden for petrol and diesel respectively due to education cess of 2 per cent.

OMCs has written to the oil ministry seeking a revision in retail prices.

Going forward, IBP would continue to suffer most if OMCs are not given full freedom to fix prices.

Given that such a situation is unlikely to come with the politically sensitive nature of the issue, the best option, experts pointed out, to merge with holding company IOC for which government has given its nod.