Indian sugar mills association

OMCs` under-recoveries to touch R1.4 lakh crore in 2011-12: Crisil

Date:	13 Jan 2012

Source:	The Financial Express

Reporter:	FE Bureau

News ID:	843

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Mumbai/New Delhi: The losses of state-run oil marketing companies, IOC, HPCL and BPCL, from retailing fuel below cost are expected to nearly double to R1.4 lakh crore in 2011-12 from a year ago but would drop to R60,000-R70,000 crore in the next financial year, rating agency Crisil said on Thursday.

Besides these losses from fuel retailing, oil marketing firms are also expected to face a fall in their margins on crude oil refining operations this fiscal. Their gross refining margin (GRM) is likely to decline to $3-$3.5 a barrel this fiscal, compared to $5.3 in the previous year. Accordingly, their refining profits would decline by 25%-30% to R12,000-R13,000 crore this fiscal, Crisil said.

A senior functionary in the petroleum ministry said last week that the two risks threatening the sector are the possibility of rising dollar demand due to the Eurozone crisis and the high crude oil price. If the Euro sinks, rising demand for the greenback would drive up the landed cost of the dollar-denominated commodity even further. For every one rupee depreciation of the domestic currency against the dollar, the retailing losses for oil companies would go up by R8,000 crore. “If there is a steep increase in crude oil price, we will be forced to raise retail prices further,” the official had said.

The two-fold rise in under-recoveries this fiscal, despite a retail price increase in June 2011, is mainly due to the high crude oil price and the depreciation of R vis-à-vis the $.

Brent crude oil price averaged $113 per barrel in the first three quarters this fiscal, 40% higher than in the same period a year ago. A disruption in oil supply from the West Asia and North Africa due to political unrest and strong demand growth from Asian countries fueled the rise in oil prices.

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