The Hindu Business Line : PSU refiners fear mounting diesel losses in Q2

Mumbai, Aug. 11 The public sector oil refining trio of IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation had cause for cheer in the first quarter of this fiscal but are wary mid-way into the second.

The April-June period saw IOC post a profit of Rs 3,683 crore with HPCL and BPCL recording Rs 649 crore and Rs 614 crore, respectively. This was due to profits made on petrol and diesel in the first two months, which made up for the setback in June that also saw losses going up on cooking gas (LPG) and kerosene.

Projected loss

Since then, things have not got any better, especially for LPG where the projected loss on August 1 was Rs 159 a cylinder. For kerosene it was Rs 16/litre, with petrol and diesel at Rs 1.73 and 39 paise a litre, respectively.

Over the last few days, the biggest concern for the refining companies has been diesel where losses are expected to touch or even exceed Rs 2 a litre by August 15. The growing spectre of a drought across the country would also result in greater use of the fuel in generator sets across farms, factories and commercial and office complexes, due to reduced hydel power generation and consequent outages.

Sources say that the last two months alone have seen a substantial increase in diesel consumption which will only intensify during the year as rains continue to be elusive and power-cuts become the order of the day.

“In the first quarter results, we were worried about the LPG and kerosene burden but diesel could take centrestage during the July-September period and even longer as blackouts worsen and use of generator sets intensifies,” an oil sector official said.

Losses on LPG, kerosene

The silver lining is that, quite unlike 2008-09, availability of the fuel will not be an issue. Private sector refiners such as Reliance and Essar along with Mangalore Refinery and Petrochemicals (jointly owned by Oil and Natural Gas Corporation and HPCL) will ensure supplies.

Yet, diesel will be sold at a subsidy and the losses, along with petrol, compensated subsequently by ONGC, Oil India and GAIL (India) as part of the support formula worked out by the Centre. Losses on LPG and kerosene for the first quarter are yet to be made good by the Centre for the three refiners. While this was nearly Rs 3,000 crore in the case of IOC, HPCL and BPCL incurred losses of Rs 990 crore and Rs 925 crore each.

These are expected to be compensated through oil bonds though they are not likely to come in by the end of the third quarter of this fiscal. “By then, combined losses on the two fuels will be closer to Rs 20,000 crore,” sources said.

For the moment, the upstream sector, comprising ONGC, Oil India and GAIL (India), has been spared the burden of making good LPG and kerosene losses, but previous instances have shown that the Centre will turn to these companies for additional support if need be.

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