IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation reported combined net losses of over Rs 40,500 crore in the first quarter of this fiscal. This wiped out half their net worth.
Even after accounting for the diesel price hike and the mandatory one-third support from ONGC, Oil India and GAIL, the three refiners are expected to post combined losses of at least Rs 70,000 crore for the April-September period.
This means, for BPCL and HPCL the net worth will wiped out, while IOC may “barely salvage something”.
The three companies are scheduled to report their second quarter results on November 9. Usually, the Centre ensures that it makes good a substantial part of the losses in the days leading to the results. However, there is no indication of its doing so this time, which means H1 will be the worst-ever showing for the trio.
Tough times ahead
IOC had the markets shell-shocked in August when it posted a net loss of Rs 22,450 crore in its first quarter.
HPCL followed with a Rs 9,248-crore loss with BPCL not too far behind with Rs 8,837 crore. This prompted the Government to hike diesel prices and adjust excise duties for petrol.
This has hardly helped as diesel losses are still over Rs 10 per litre.
In addition, combined borrowings are now closer to Rs 170,000 crore and banks are not exactly jumping for joy. “For all we know, they (banks) could just make life very difficult for us in the coming months,” an oil industry official said.
Infrastructure spend
The precarious financial state of the companies could affect investments earmarked for critical projects.
IOC, BPCL and HPCL believe that infrastructure-related spending could be anything upwards of Rs 150,000 crore over the next four years. “Where are we going to get the money from? If we don’t fix critical links in the supply chain, the country could go without petrol and diesel,” the official warned.
Credit rating agencies will be monitoring these developments and life could become even more difficult for the three companies.
The Government has indicated that it will ‘bite the bullet’ on fuel subsidies but is not likely to take any chances, especially after the furious reaction to the diesel price hike.
Observers say there is no way out for the Government but to compensate IOC, HPCL and BPCL for the losses incurred. In the process, the fiscal deficit will spin out of control and this, in turn, can only be kept in check with a fuel price hike. Will the Government choose economics over politics? Either way, it has to act quickly if it is to ensure the well-being of the oil companies.