OMCs delay Q1 results in hope of govt compensation

Government owned oil marketing companies (OMCs), which usually announce their first quarter results in July, will announce this year’s numbers in mid-August, since they expect government compensation for subsidised sales to be approved early next month.

Indian Oil will declare its result on August 10 and Bharat Petroleum on August 12. Hindustan Petroleum is yet to announce the date. “We are awaiting the government compensation, so that we can show some profit,” said an industry official.

Indian Oil, Bharat Petroleum and Hindustan Petroleum are estimated to have incurred under-recovery of around Rs 44,000 crore on sale of products at government-controlled prices. Of this, Rs 14,509 crore or a third has been shared by the government upstream companies, Oil and Natural Gas Corporation and Oil India. However, the rest has to come from the government. The petroleum ministry has asked the finance ministry to compensate two-third of the under-recovery.

In the Budget for 2011-12, the government had earmarked Rs 20,000 crore towards the year’s petroleum subsidy. However, this amount was exhausted in compensating the previous year’s fourth-quarter subsidy.

OMCs, which import 80 per cent of their crude oil requirements, sell diesel, kerosene and liquefied petroleum gas (LPG) at government-subsidised prices, resulting in losses. These are usually compensated through a mix of cash subsidy from the government and discounts from ONGC and Oil India. Since the compensation comes with a lag, these companies are forced to borrow heavily for their working capital requirements. The borrowings of OMCs had gone well above Rs 100,000 crore recently, due to lack of price revision and delayed transfer of subsidy.

Before the price rise and other duty changes the government announced on June 24, these companies were losing heavily on diesel, kerosene and domestic LPG. On June 24, the price of diesel and kerosene was increased by Rs 3 and Rs 2 per litre, respectively. The LPG price was raised by Rs 50 a cylinder. Customs duty on crude oil was brought to nil from five per cent and a corresponding change made in diesel and petrol import duty. The diesel excise duty was also cut from Rs 4.60 to Rs 2 per litre. Even after the changes and increase, these companies continue to lose Rs 5 on every litre of diesel sold and Rs 23.77 on kerosene. They also lose Rs 291 on every LPG cylinder.