OMCs risk profiles to get a fillip

With the government decontrolling retail prices of petrol,revising the prices of cooking fuels,and announcing its intention to gradually decontrol diesel prices on June 25,analysts say the move will positively impact risk profiles of oil marketing companies. However,given the sizeable under recoveries that still exist,an institutionalised mechanism for the timely sharing of subsidy remains the need of the hour.

According to Crisil,with the revision in prices,the public sector oil companies (PSOCs) gross under-recoveries (which result from selling petroleum products below the required selling price) will reduce by about Rs 25,000 crore for 2010-11 . The price decontrol will eliminate under-recoveries on petrol,reduce under-recoveries on diesel by about 50 per cent (considering the present price increase),and reduce those on liquefied petroleum gas (LPG) and superior kerosene oil (SKO) by about 15 per cent.

However,according to a Credit Suisse report,The scary thing is that even after such a seemingly bold move,FY11 loss estimates remain similar to FY10 actual levels,which the government struggled to fund. Without the diesel deregulation promised,FY12 losses will be of the same order at $75/bbl oil. Macquarie Equities Research said in a report that a partial roll-back could be expected,especially in kerosene as a customary move to appease political opposition.

Crisil said PSOCs engaged in retail sales stand to benefit. These steps should reduce IOCs under-recoveries by about Rs 13,000 crore,and those of BPCL and HPCL by about Rs 6,500 crore and Rs 5,500 crore,respectively.