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BW Businessworld

Who Will Foot The Rising Oil Bill?

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Politics invariably takes precedence over economics. At least when it comes to addressing the problems of oil marketing companies — Bharat Petroleum Corp. (BPCL), Hindustan Petroleum Corp. (HPCL) and Indian Oil Corp. (IOC) — in India.The government's seeming inability (owing to impending elections in states such as West Bengal and Tamil Nadu) to raise fuel prices is hurting OMCs. The unrest in Libya has caused Brent crude to touch the $115 per barrel mark. Collectively, the three OMCs are losing Rs 350 crore daily. These OMCs have projected a revenue loss of Rs 77,500 crore in 2010-11, almost double the Rs 35,000 crore provided for in the revised budget estimates for 2010-11. There was no guidance in the budget on how the remaining losses will be dealt with either. Besides, the OMCs projected these losses prior to the trouble in West Asia and north Africa.

"We are sure that this time, too, they (government) would come to our rescue," says S.K. Joshi, director, finance at BPCL.

The markets have reacted accordingly. Stocks of OMCs such as BPCL, HPCL and IOC have fallen about 6-7 per cent in the past month. Moreover, the rollback of petrol de-control policy announced in 2010 is not ruled out either. "There is no plan to regulate petrol prices now, but if prices go up astronomically then the government may intervene," says Sudhir Bhargava, additional secretary, petroleum ministry. Analyst say stocks of OMCs will continue to slide until there is some clear signal from the government on the loss-sharing front.
(This story was published in Businessworld Issue Dated 21-03-2011)