OMC's back to under-recoveries

After a brief honeymoon with over-recoveries on sale of petrol and diesel, the country’s oil marketing companies — Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) — are back to square one, reporting under-recoveries on the sale of these subsidised products.

From an over-recovery of as high as Rs 12.35 on a litre of petrol and Rs 2.70 on diesel in the first fortnight of December 2008, the OMCs are back to reporting under-recoveries on petrol at Rs 1.40 and a marginal over-recovery of 0.80 paise on sale of diesel currently.

While margins on petrol remained flat in February, diesel was fetching positive margins of Rs 4.35 to the OMCs. However, these margins were eroded when crude oil spiked to an average $46.02 in March, from $43.22 in February.

The companies are still making losses of Rs 9 per litre on sale of kerosene and Rs 117 per cylinder of on sale of per cylinder of liquefied petroleum gas (LPG).

“Crude has hardened in the past couple of weeks and if the spike continues, we could be back to negative margins on sale of diesel also,” said a senior IOC official.

However, an HPCL official said the over-recovery or under-recovery did not impact the company as long as the government issued adequate bonds to cover up such losses.

While these companies are required to sell petrol, diesel, LPG and kerosene at subsidised rates, the losses incurred in the process get compensated through grants of government bonds.

Crude oil was trading around $40 per barrel in January against $35 in December 2008. The Indian crude basket price has averaged $50.87 per barrel so far this month, compared with $46.02 in March.

However, OMCs are deriving solace from that fact that their daily under-recoveries have fallen from close to Rs 500 crore per day in April 2008 to Rs 60 crore a day now — an 88 per cent decrease.

Analysts say that starting with a projected under-recovery of Rs 2,45,000 crore at the beginning of this financial year, the OMCs are likely to close the year with Rs 1,10,000 crore — a decrease of 55 per cent.

According to Ambit Research, the OMCs could continue to report under-recoveries as long as crude prices rule above $45 per barrel. “With crude hovering around $50 per barrel currently, a net under-recovery of $5 per barrel is being incurred on sale of key petroleum products,” stated an analyst at Ambit Research.

The OMCs are estimated to have closed the last fiscal with under-recoveries of Rs 1,03,908 crore. However, they have been compensated with Rs 70,967 crore in the form of government bonds, while another Rs 32,000 crore have been absorbed by the upstream companies.