The trio of IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation is scheduled to declare fourth quarter results by the end of this month.
It is a million dollar question whether they can meet the deadline as their owner and largest shareholder, the Government, has created a new tangle.
For some time now, the Finance Ministry has been pushing for export parity pricing as the formula to compensate the refiners for losses incurred on diesel, cooking gas and kerosene.
Thus far, the route adopted has been import parity pricing where the companies factor in duties, freight and transport charges before the products are sold in the market.
These costs are then recovered from the Government as part of the compensation formula where the upstream oil companies (ONGC and Oil India) also do their bit in this subsidy-support mechanism.
The Finance Ministry believes IOC, BPCL and HPCL will now have to be compensated through export parity pricing which means costs incurred after importing crude will no longer be reimbursed. This is nothing short of catastrophic for the three oil companies, the Petroleum Ministry has reiterated.
“If refining companies are importing crude, paying freight, port and transportation charges and then don’t recover these costs, it becomes unviable for them to continue. Export parity is not possible when we are importing 80 per cent of our crude requirements,” a top oil industry official told Business Line .
The better option, he added, was to import finished products instead of going through the entire exercise of refining crude.
In the process, no investments will be made on infrastructure such as refineries, pipelines, bottling plants and retail outlets. There is also no telling if constant supplies will be ensured either. “We need money to make investments. But where will that money come from to meet the needs of the economy?” the official asked.
Impact on projects
A shift to export parity pricing is expected to shave off 15 per cent of fuel losses which would be music to the Finance Ministry’s ears except that it is fraught with “dangerous consequences”.
In the near-term, new projects such as HPCL’s Rajasthan refinery or IOC’s Paradip facility may be scrapped because they will become unviable cost centres.
Similarly, it remains to be seen how BPCL’s ally in the Bina refinery, Oman Oil, will react to a regime of export parity pricing.
For the moment, everyone is just waiting and watching. “We just cannot close our books even though our results should be declared by May 31,” an executive said. And if the refiners are waiting, so will the upstream duo of ONGC and Oil India since subsidy payouts to IOC, HPCL and BPCL can only be finalised once a formula is in place.
It is now up to the Prime Minister’s Office to solve this issue and ensure that the fourth quarter results are not delayed because of this impasse between the Finance and Petroleum Ministries. “It is hardly a happy situation for us to constantly wait for compensation from the Government year after year. It makes a mockery of the entire pricing system,” the industry official said.
murali.gopalan@thehindu.co.in