The Hindu Business Line : PSU refiners to get 100% compensation on fuel losses

Mumbai, Sept. 14 The good news for the public sector oil refiners, midway into the first half of this fiscal, is that the decks have been cleared for complete compensation of losses incurred on petrol, diesel, kerosene and liquefied petroleum gas.

However, the companies – IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation – have no clue when the money will reach them.

“The Centre has given its go-ahead to make good two-thirds of the projected losses of Rs 45,000 crore on these fuels while ONGC, Oil India and GAIL (India) will take care of the rest. We expect the formal notification to reach us soon,” top oil industry sources told Business Line.

This two-thirds, amounting to Rs 30,000 crore, comprises losses made on LPG and kerosene and will be compensated by way of oil bonds.

Diesel and petrol losses will be made up by the upstream oil companies through discounts on crude and petro-products.

Formal approval soon

Indications are that the Finance Ministry will only have to give its formal approval to issue oil bonds for 2009-10.

Logically, as sources say, this should be cause for cheer to the three refiners but there are growing concerns about the time of compensation.

For instance, the Rs 10,000 crore bonds for the fourth quarter of 2008-09 still have not reached the companies even though the Budget had made a reference to this amount.

The three companies had also accounted this in their books (as receivables) but are still waiting for the bonds to reach them.

Likewise, losses on LPG and kerosene in the first quarter of this fiscal totalled nearly Rs 5,000 crore for IOC, BPCL and HPCL and estimated to be nearly three times as much for the second quarter which ends on September 30, thanks largely to crude firming up in the last three to four months.

Delay ‘worrying’

“We still have not received the letter assuring compensation which will help us update our books and ensure that we do not slip into the red in the second quarter,” an oil industry executive said.

At one level, there is no cause for alarm because “things are sorted out at the last minute though the delay is still inexplicable and worrying”.

As for petrol and diesel losses, ONGC along with Oil India and GAIL will even these out as was the case in the first quarter losses totalling nearly Rs 600 crore.

However, losses on the two fuels are expected be closer to the Rs 2,000-crore mark in the second quarter which could lead to some muted protests from the upstream companies though they will eventually have to cough up the money.

“Since nothing is cast in stone, ONGC, Oil India and GAIL may even end up supporting a part of kerosene and LPG losses if the Centre puts a cap on the oil bonds,” sources said. The last quarter of 2008-09, for instance, saw these upstream companies contribute Rs 943 crore to their refining counterparts (through discounts) to ensure that none of them slipped into the red.

Unlike the first quarter, when IOC, HPCL and BPCL made gains on inventories and foreign exchange, there is no such luck expected in the June-September period. Harsh realities in the form of crude settling at $70 a barrel, coupled with growing losses on diesel and kerosene, are cause for some concern.

Incidentally, the top management in these companies is also keeping its fingers crossed that crude prices do not crash suddenly either as this will lead to substantial inventory losses at a time when none of them is keen on revisiting the tough months of 2008-09.

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