Negative view on state-run oil cos: Fitch

The global rating agency Fitch today said there is a negative overhang in the downstream sector (refining and marketing) of the country's public sector oil and gas firms.

"While the outlook on the downstream public sector companies has improved from H208, the negative overhang remains as net under-recoveries have accumulated again in FY10," said Fitch Ratings India Director Abhinav Goel.

"The discretionary nature of oil product pricing and subsidy sharing, along with the lack of a well-defined mechanism for timely support are key reasons for the continued negative outlook on the public sector companies downstream sector," Goel said.

Fitch, in its special report, said the upstream sector (exploration and production) of the country's oil and gas industry has a stable outlook but the outlook on the downstream business is negative to stable.

"The negative outlook applies to the public sector companies, while the stable outlook is for private sector entities," the report said.

The government had set up an expert committee in FY10 to advise on domestic fuel pricing issues, which has yet to submit its report. "Although a positive step, this is not likely to yield any meaningful results unless the major recommendations are implemented," Goel said.

While the government has not allocated any oil bonds to date in FY10, it has recently confirmed increased budgetary support to downstream PSCs for the year.

"However, the agency notes that given the higher fiscal deficit in FY10, the headroom for increased subsidy will likely be limited," Fitch said.