The shares of public sector refiners Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) fell today on concerns that the tension between India and Pakistan could delay the dismantling of the administered price mechanism (APM), slated from April 1, 2002.
BPCL was down a hefty 8.79 per cent to close at Rs 182.60, whereas HPCL had slipped by 4.73 per cent to Rs 135. With today's fall, the HPCL stock has lost 16 per cent in the last 6 trading sessions from Rs 159.70 on 18 December 2001 while BPCL has shed 9.57 per cent.
Earlier, in anticipation of the dismantling of the APM and the imminent divestment of some more stake of the government, refinery shares had been on an uptrend. HPCL had climbed by 68.9 per cent from a low of Rs 96.10 on 17 September 2001 to a high of Rs 162.35 on 11 December 2001. Similarly, BPCL jumped by 78.9 per cent from a low of Rs 123.50 on 17 September 2001 to Rs 221.05 on 10 December 2001.
Post-APM regime, refiners will be able to market their products freely. This is expected to raise their refining margins, currently constrained by a fixed rate of return on capital employed stipulated by the government.
The escalating tension between India and Pakistan and fears of another Indo-Pak war, however, have cast a shadow on the oil sector. Analysts say that in case the hostilities prolong, the government could postpone the dismantling of the APM well beyond the scheduled date. By retaining control over the sector, the Centre would be able to monitor and direct the movement of petroleum products better. The petroleum ministry is already gearing up to ensure supply in the war zone in case hostilities break out between the two countries.
The delay in oil sector deregulation in turn is likely to delay the divestment of government's stake in the PSU refineries.
While HPCL and BPCL are not in the list of 13 companies to be divested by the end of this fiscal, both, nonetheless, feature in the divestment list of the government.
Domestic demand for petroleum products has been dropping for over a year now due to the economic slowdown. The country recently lowered its forecast for petroleum consumption in 2001-02 (April-March) to 99.44 million tonne from 104.58 million tonne estimated earlier.
