Less outgo this year due to soft oil prices; Rs 10,000 crore needed in Q4

“With the Finance Ministry categorical that there will be no further support and the Petroleum Ministry unlikely to raise fuel prices, the onus will be on ONGC with a little support from OIL and GAIL.”

In 2008-09, the Oil and Natural Gas Corporation along with Oil India and GAIL (India) contributed nearly Rs 33,000 crore to ensure that their public sector refining counterparts did not sink into the red.

This fiscal has seen a much lower outgo from these upstream companies, thanks largely to more benign crude prices in the earlier months (at $40 per barrel compared to levels of $147/bbl in 2008-09) coupled with the fact that they were only asked to make good petrol and diesel losses.

Thus far, ONGC, OIL and GAIL have coughed up barely Rs 9,000 crore in the first three quarters of this fiscal but may end up being poorer by at least Rs 10,000 crore in the fourth quarter alone.

The only way this can be alleviated is by the Finance Ministry providing additional cash support to the refiners or by the Petroleum Ministry going in for another fuel price hike.

For the moment, neither option looks likely, which means that the upstream oil companies may end up throwing the last-minute lifeline to IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.

This would be pretty much on the lines of 2008-09 when they coughed up Rs 943 crore in the fourth quarter (after forking out Rs 32,000 crore between April and December 2008) to keep the refiners afloat.

“Somebody will have to bail out IndianOil, HPCL and BPCL this fiscal too. With the Finance Ministry categorical that there will be no further support and the Petroleum Ministry unlikely to raise fuel prices, the onus will be on ONGC with a little support from OIL and Gail,” oil industry sources told Business Line.

In the process, the three upstream companies would not only have to compensate petrol and diesel losses, estimated to be around Rs 4,500 crore in the fourth quarter, but also a part of the losses incurred on LPG and kerosene.

“This is the only way the refiners will be prevented from sinking into the red in 2009-10,” sources said.

The Government said it would take care of LPG and kerosene losses incurred by these companies for the entire year. However, the Finance Ministry only doled out a one-time cash package of Rs 12,000 crore in 2009-10 which helped IndianOil, HPCL and BPCL post profits in the third quarter of this fiscal.

IndianOil's portion of this largesse was Rs 7,100 crore, of which it accounted Rs 4,483 crore in the April-December period. HPCL and BPCL received Rs 2,529 crore and Rs 2,371 crore each, and factored in Rs 1,897 crore and Rs 1,510 crore for the nine months.

In the process, the three oil companies are left with only Rs 4,110 crore in the fourth quarter when their combined losses on LPG and kerosene are expected to cross Rs 10,000 crore.

Loss is certainty

It is now a near certainty that the three downstream companies will report combined net losses of around Rs 9,000 crore for the fourth quarter even after the ONGC-led combine makes good petrol and diesel losses.

Sources say IndianOil's share alone will be close to the Rs 5,000-crore mark with HPCL and BPCL taking up the balance.
This could wipe out the gains made by these companies in the first nine months of this fiscal.

IndianOil's net profit for April-December stands at around Rs 4,700 crore, with BPCL at Rs 834 crore and HPCL trailing with Rs. 543 crore.