Oil marketing firms’ net suffers on selling fuel below cost
New Delhi 31-May-2011

IndianOil (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) would have together posted an additional net profit of Rs.5,246 crore for the year ended 31 March had they not absorbed a notional cumulative loss of Rs.6,894 crore on selling fuel below cost.

The three state-owned oil marketeers registered a cumulative net profit of Rs.10,531.16 crore in fiscal 2011 (FY11). Notional cumulative loss on selling fuel below cost increased 23% from Rs.5,621 crore that they absorbed in FY10.

This happened at a time when crude oil price in the Indian basket for the last fiscal was $113.09 per barrel.

The losses would have been greater had the government not directed upstream companies such as Oil and Natural Gas Corp. Ltd (ONGC), Oil India Ltd (OIL) and GAIL (India) Ltd to pay Rs.30,295.75 crore as compensation to state-owned oil retailers.

The operating environment for the firms is marked by uncertainties as they continue to sell below cost and are not sure about the extent to which they will be reimbursed by the government and when.

IOC in an announcement on Monday said that net profit in FY11 decreased 27% to Rs.7,445.48 crore. The company said profit would have increased by an additional Rs.3,200 crore had it not absorbed a loss of Rs.3,803 crore on selling fuel below cost in FY11, a 20% increase over Rs.3,159 crore in losses in FY10. The biggest refiner in the country posted a 21.26% increase in revenue to Rs.3.28 trillion.

IOC, which has a 49.6% share in the country’s market, saw net profit for the March quarter dip 30% to Rs.3,905 crore from Rs.5,557 crore in the year-ago period. Revenue from operations rose 31% to Rs.93,843 crore in the quarter.

In a separate announcement on Monday, BPCL said net profit in FY11 increased 0.58% to Rs.1,546.68 crore. The company’s profit would have increased by an additional Rs.1,046 crore had it not absorbed a loss of Rs.1,584 crore on selling fuel below cost, a 28.05% increase over Rs.1,237 crore in losses in FY10.

BPCL saw net profit for the March quarter increase 33% to Rs.935.48 crore from Rs.703.18 crore in the year-ago period. Revenue from operations rose 21% to Rs.48,311.46 crore in the quarter.

While HPCL’s net profit in FY11 increased 18% to Rs.1,539 crore, the company said its profit would have increased by Rs.1,000 crore more had it not absorbed a loss of Rs.1,509 crore on selling fuel below cost, a 23.18% increase over Rs.1,225 crore in losses in FY10.

The marketeers increased petrol prices on 15 May and may soon raise them again.

“We have to firm up a view,” said R.S. Butola, chairman, IOC.

A decision on increasing the prices of diesel and cooking gas is expected to be taken by an empowered group of ministers on pricing of petroleum products, headed by finance minister Pranab Mukherjee. The group is expected to meet on 9 June.

In another development, ONGC said net profit in FY11 increased 13% to Rs.18,924 crore. It said profit would have increased by an additional Rs.14,247 crore had it not paid out a subsidy of Rs.24,892 crore as compensation to state-owned oil marketeers to partially offset losses on selling fuel below cost.

ONGC saw net profit for the March quarter decrease 26% to Rs.2,791 crore from Rs.3,776 crore in the year-ago period. Revenue from operations rose 5% to Rs.15,554 crore in the quarter.

While OIL results are to be announced on Tuesday, state-owned GAIL’s net profit in FY11 increased 13% to Rs.3,561 crore from Rs.3,140 crore in FY10.

India’s largest gas transmission company said profit would have increased by 25% had it not paid out a subsidy of Rs.2,111 crore as compensation to state-owned oil marketeers.

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