At a time when global crude prices are at a two-year high, Indian public sector oil firms are likely to see their losses surge by 45 per cent this fiscal in absence of revision in retail prices of petroleum products, ratings firm Crisil said today.
It said that under-recoveries are likely to increase to up to Rs 67,500 crore and Rs 75,000 crore in 2010-11 and 2011-12, respectively, from Rs 46,000 crore in last fiscal.
"Rising crude oil prices without corresponding revisions in retail prices of regulated fuels are likely to dent the profits of India's public sector oil companies," Crisil said.
It further added: "Crisil Research expects oil companies' under-recoveries -- the losses incurred on selling fuels at less than their cost price -- to rise by 45 per cent in 2010-11, and by another 14 per cent in 2011-12."
The onset of an early winter in Europe and North America, coupled with other factors like a weak dollar and speculative buying, resulted in sharp rise in crude oil prices since October last year, with global prices edging towards the psychological mark of $100 per barrel.
Crisil said that increasing energy needs of countries like India and China will ensure that average prices would rise from $70 per barrel in 2009-10 to about $82 per barrel in 2010-11 and further to $85 per barrel in 2011-12.
"Although international prices of petroleum products will rise in line with crude oil prices, domestic retail prices of regulated fuels (diesel, PDS kerosene and LPG for household use) will remain unchanged, given the government's concerns over rising inflation. India's public sector oil companies' under-recoveries will therefore increase sharply," it said.
Inflation went up to 8.43 per cent in December, while food inflation remained above 16 per cent during the second week of January, putting another challenge before the government which had earlier claimed that the rate of price rise in the economy would fall to around 6 per cent by end of March 2011.
The government had in mid-2010 decontrolled the price of petrol, while also going for hike in the prices of diesel and LPG. However, diesel prices are yet to be fully decontrolled.
"Crisil Research expects under-recoveries to increase from Rs 46,000 crore in 2009-10 to Rs 65,000-67,500 crore in 2010-11 and Rs 72,500-75,000 crore in 2011-12," Crisil Research Head Ajay D'Souza said.
The government and the oil PSUs share the losses in a proportion determined by the government every year.
"Crisil Research expects the government to absorb at least 50 per cent of the under-recoveries over the next two years. Upstream PSU oil companies will meet about 33 per cent of the under-recoveries in the form of upstream assistance and oil marketing companies will absorb the remainder as marketing losses," Crisil said, adding that the mounting under-recoveries will adversely affect the profits and cash flows of oil PSUs.
It said that assistance from upstream PSU oil companies like ONGC, OIL and GAIL is likely to increase to Rs 21,700 crore in 2010-11 and Rs 24,700 crore in 2011-12 from Rs 14,500 crore in 2009-10.
"Marketing losses of PSU oil marketing companies (IOCL, BPCL and HPCL) would rise to Rs 10,800 crore in 2010-11 and Rs 12,300 crore in 2011-12 from Rs 5,500 crore in 2009-10," Crisil Research Director Nagarajan Narasimhan said.
Regarding the global supply situation, it said that the crude oil prices will recede from the current levels once the demand-supply mismatches diminish.
"Nevertheless, structural factors like an increasing dependence on OPEC oil supply by non-OPEC countries led by China and India will keep crude oil prices firm over the next two years," Crisil said.
