Cairo turmoil twists OMC finances further

The Egyptian crisis has added to the woes of oil marketing companies (OMCs), as global crude oil prices have crossed $100 a barrel. The revenue loss on retail diesel sales has already risen by almost Rs 3, to a historic high of Rs 9.23 a litre.

The government-owned OMCs — Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) — sell diesel, domestic LPG and kerosene at a government-controlled price. “We are coping with the high prices for some time and are watching the situation. We are sure the government will compensate us for the losses,” said B Mukherjee, director (finance) HPC.

While the government decontrolled petrol prices in June 2010, it has ruled out freeing the prices of diesel and cooking fuels, due to concerns on high inflation. With Oil and Natural Gas Corporation heading for a follow-on issue, it cannot ask the upstream companies to pay more than a third of the revenue loss.

The OMCs were projected to lose Rs 75,507 crore in the current financial year if the average for the January-April quarter remained $90 a barrel.

A Press Trust of India report from Houston said major energy companies with linkages here, including Schlumberger Ltd, Transocean and Diamond Offshore Drilling Inc, had decided to stop their Egyptian operations for now, due to the uncertainty there. According to news reports, BP, the largest foreign investor in Egypt had begun relocating workers, as did Russia’s OAO Novatek and OAO Lukoi.

While there are worries about the crisis spreading to other countries, International Energy Agency chief Nobuo Tanaka said today, “It is not an emergency now”. With the Organization of Petroleum Exporting Countries ruling out any meeting before June, there are concerns of importing countries, such as India, facing the heat unless Opec increases output.

The three OMCs are losing Rs 345 crore in revenue every day on selling diesel, domestic LPG and kerosene below cost. The lose Rs 21.60 a litre on kerosene and Rs 356.07 on an LPG cylinder, besides incurring a loss of about Rs 2.50 a litre on petrol, despite its decontrol.

The government petroleum subsidy bill has already risen to Rs 21,000 crore from the Rs 3,108 crore estimated in the Budget, even without taking into account Rs 21,000 crore promised to the oil companies.

The increased amount sanctioned has yet to be approved by Parliament but would be taken on the books of oil companies on the basis of the government letter and shown as receivables. This will help them to report profit or lower losses.