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Price controls ravaging India's refiners

Price caps on key oil products are ravaging the finances of state-owned refiners in India.

Two such companies with businesses mostly in refining reported large losses in the most recent fiscal quarter.

India’s price-administration system keeps prices of diesel, LPG, and kerosine below market levels, but refiners must pay market prices for crude oil. Gasoline hasn’t been subject to price controls since 2010 but doesn’t account for a large share of India’s fuel mix.

In the past, the government compensated refiners for what it calls “under-recovery” on negative-margin sales of those products. Recently, fiscal problems have kept it from doing so, forcing refiners to sustain the losses.

Indian Oil Corp. Ltd., which owns or controls 10 of India’s 20 refineries and has no upstream operations, reported a loss of $4.07 billion for the quarter that ended June 30. In the same quarter a year ago, the company lost $675 million.

IOCL’s gross revenue was up 12.4% from the same period a year earlier at $18.5 billion. The main factor in the recent loss, it said, was an under-recovery total of nearly $3.2 billion.

Hindustan Petroleum Corp. Ltd., which owns two refineries in India and holds interests in two others and has a relatively small exploration and production business, reported a loss of $1.7 billion and an under-recovery total of $1.3 billion for the quarter. Gross revenue was up 5.7% at $8.4 billion.

Other of India’s large, state-owned companies own refineries but have profitable upstream businesses large enough to absorb under-recovery losses.

On Aug. 9, the Ministry of Petroleum and Natural Gas said all “public sector oil marketing companies” in India, including IOCL and HPCL, reported under-recoveries during April-June totaling $8.7 billion.

As of Aug. 1, the ministry said, the companies were incurring under-recovery losses on sales of diesel, LPG, and kerosine of $71 million/day.


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