The government’s recent ₹22,000 crore grant to cover losses incurred by OMCs on sales of liquefied petroleum gas (LPG) between June 2020 and June 2022 is ‘credit positive’ for Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL), but the global rating firm signalled this is not adequate.
“We estimate that state-owned refining and marketing companies have lost around $6.5-7 billion in revenue on the sale of petrol and diesel from November 2021–August 2022," Moody’s said in a report titled ‘Government grant is credit positive but will only provide partial relief’.
Moody’s estimated that IOCL’s revenue loss on petrol and diesel sales at $3.0 billion-$3.2 billion, while that for BPCL and HPCL is estimated at $1.6-1.9 billion.
“The ₹220 billion grant is credit-positive because it will provide support to earnings and cash flow for Indian refiners. However, despite the grant, we expect refiners’ earnings to remain weak in the fiscal year ending 31 March 2023 (fiscal 2023) because of significant losses incurred by these companies on sale of petrol and diesel during the first half of fiscal 2022-23, for which they have not received any compensation so far," the report said.
“Despite higher feedstock costs and an increase in international petrol and diesel prices, the selling prices of petrol and diesel in India, which account for almost 55% of total sales of petroleum products in the country, did not increase at the same pace," Moody’s said.
“Barring a small increase of around ₹10 per litre between 22 March and 6 April 2022, net realized prices for refiners have largely been unchanged since November 2021," it said.
Over this period, the recovery in demand following easing of movement restrictions and the onset of the Russia-Ukraine conflict has led to a significant rise in crude oil prices, which averaged around $104 a barrel between January and August 2022, compared to around $80 a barrel in November 2021, Moody’s pointed out.
“While crude oil and international transportation fuel prices have decreased from the highs seen earlier in the year, they remain subject to the volatile industry environment and geopolitical developments. Any rise in crude oil or international product prices without a commensurate increase in net realized prices for the Indian refiners will further weaken their earnings and cash flow outlook," it said.
