Govt decision to dole out Rs 38.5K cr to help OMCs positive: Moody's

Credit rating agency Moody's lauds government decision to dole out Rs 35,000 crore to help OMCs like Indian Oil, HPCL and BPCL to tide over financial difficulties.

hidden May 28, 2012 17:43:22 IST
Govt decision to dole out Rs 38.5K cr to help OMCs positive: Moody's

New Delhi: Terming the government's decision to dole out Rs 38,500 crore additional cash subsidy to oil PSUs for fiscal 2011-12 a positive step, credit rating agency Moody's said it will help Indian Oil, HPCL and BPCL to tide over difficult financial position.

"This plan is credit positive for oil marketing companies, including Indian Oil Corporation Ltd (IOC, Baa3 stable), which had limited capacity to share any subsidy burden in the fiscal year owing to a cyclical downturn in the industry's refining margins," Moodys' Investor Service said in a report.

Govt decision to dole out Rs 385K cr to help OMCs positive Moodys

Reuters

The cash payout would be on top of Rs 45,000 crore that Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) got for the first nine months of 2011-12 financial year.

The three firms had lost a record Rs 1,38,541 crore on selling diesel, domestic LPG and kerosene at government- controlled rates that were way lower than market price.

Together with the additional payout agreed, the government will make up 60 percent or Rs 83,500 crore of the total revenue loss.

The three state-run OMCs sell high-speed diesel, kerosene, and liquefied petroleum gas at state-controlled retail prices through their networks of petrol stations across India. Retail prices have remained well below international prices since June 2011.

This loss or fuel subsidy is shared between the government, the three oil marketing companies and the three oil-producing state-run upstream firms ONGC, GAIL and OIL.

"Full reimbursement will clearly improve earnings and provide much needed liquidity to oil marketing companies," it said, adding "the action by the government exceeded our expectations of a lower-than-full reimbursement owing to a widening fiscal deficit."

Further, upstream companies Oil and Natural Gas Corp (ONGC), Oil India and GAIL India have been asked to shell out an additional Rs 1,640 crore - over the Rs 53,360 crore indicated earlier 0151- as their share of the subsidy burden.

"We view this as marginally positive for upstream companies, as their share could have been much higher given the government's fiscal pressures," it said.

It added that the fuel subsidy burden for FY12 is the highest ever, arising from a combination of high crude oil prices, depreciating rupee, and a lack of government reforms with regard to its grip on regulated fuel prices that prevents downstream firms from passing on higher prices to consumers.

"For the quarter ending in June, we expect the total fuel subsidy to be Rs 450 billion, which will be the highest for any single quarter. In the absence of reform, the subsidy burden will increase even further as the consumption volumes rise and the local currency depreciates further," it said.

PTI

Updated Date:

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