Rupee slide to hit oil refiners

A depreciating rupee may be hitting oil refiners, but some of the impact will be cushioned by an increase in the prices of unregulated petroleum products like petrol, naphtha, ATF and furnace oil. For upstream companies Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL), the gross realisation will improve — though, on the net level, it will be largely offset by their rising subsidy burden. Even as oil refiners like RIL, which depend on export will see realisation improve, they will pay more for the raw material, crude.

The country meets 80 per cent of its crude oil consumption demand from imports. Domestic refiners will now have to pay around eight per cent higher (over last month) to purchase crude oil. The Indian rupee has depreciated by nearly eight per cent in recent days. Against an average of Rs 44.42 in July and Rs 45.32 in August against the dollar, the rupee has averaged Rs 46.68 so far in September and closed at Rs 47.56 today.

“Our realisation is based on dollar pricing. Therefore, our gross rupee realisation will go up and be positive,” says T K Ananth Kumar, director (finance), OIL. “However, much of this will be offset by the subsidy we pay towards losses of oil marketers. Consequently, the net impact may be marginal.” OIL and ONGC, along with gas marketer GAIL, together shoulder around 33 per cent of the loss incurred by the oil marketers.

Public-sector oil marketers Indian Oil, Bharat Petroleum and Hindustan Petroleum will be burdened with rising under-recovery or revenue loss, as they will be unable to pass on the losses in diesel, kerosene and domestic LPG — the three petroleum products regulated by the government. The loss on diesel is expected to rise to nearly Rs 6 per litre, up 25 per cent from the current number.

Overall, the revenue loss of these companies for the current year will sharply increase from the current projected level of Rs 121,000 crore. An Indian Oil official says every Rs 1 increase in payment due a to weakening rupee increases the under-recovery of the three marketers by around Rs 9,000 crore.

As government compensation comes with a lag, the industry will have to borrow heavily to fund their working capital requirement. The combined borrowing is already at Rs 120,000 crore.

Private oil refiners such as Essar Oil and RIL, who derive sizeable revenue from exports, will be able to sell their products at higher prices internationally. An Essar Oil official, however, says, “Since we import crude oil and refine it domestically to export finished product, the higher realisation will be eaten up by the higher cost of raw material”.