Rs 17,000 cr – What state elections cost IOC, HPCL & BPCL

Petrol price break up and comparison in $/bbl

The three main state-owned oil refining and marketing companies have so far lost $2.25 bn (Rs 17,000 cr) due to the freeze on petrol and diesel price imposed by the government ahead of state elections in Uttar Pradesh, Punjab and Goa, according to a report by Moody’s.

The rating agency pointed out that Indians are paying nearly 60% more for petrol compared to international markets, but most of this money is going governments in the form of taxes.

As a result, oil marketing companies such as Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are suffering a loss of revenue.

The average price of petrol in India is $202 per barrel, which works out to $1.27 (Rs 97) per liter.

However, out of this $202, excise duty imposed by the central government accounts for $59, while value added taxes imposed by state governments account for $33 and another $8 goes as dealer commission.

As a result, out of the $202 paid by the consumer at the pump, the oil company gets only $102, while the price of petrol in international markets — from where it buys the commodity — is $127.

As a result, said Moody’s Investors Service, oil companies end up losing $25 per barrel or Rs 12 per liter on petrol.

For diesel too, the number is similar, at $24 per barrel.

High oil prices will result in increased borrowings by these oil companies and their profitability will take a hit in the short term, the rating agency said.

But margins will improve thereafter, even as credit metrics remain within rating tolerance levels except for HPCL, it added.

CRUDE PRICE & RUSSIA

Moody’s has a base case scenario involving a spike of crude oil prices rising above $130 per barrel by late April.

However, if Europe too bans Russian oil & gas, crude oil could reach almost $165 by May, it warned.

Sanctions on Russian too could have some impact on Indian oil companies’ profit margins, it warned.

For example, Russian fields account for 31% of Oil India Ltd’s production and 24% of its proved reserves.

For ONGC, they make up 12% of the production and 20% of its reserves.

Hence, they contribute around 11-12% of these two companies’ operating cash profits as well.

“ONGC, OIL, IOCL and BPCL have invested in upstream oil and gas assets in Russia. Import bans and international sanctions on Russia may constrain the future cash flow-generating capacity of these assets and lead to impairment losses for the companies.

“However, the Indian companies have not announced an exit from their Russian investments and therefore an immediate impairment in the value of investments will be limited, especially under the current oil price environment,” the agency pointed out.

“If an increasing number of Russian banks are excluded from the main financial messaging SWIFT system, Indian companies might not be ableto receive future dividends from their upstream investments in Russia. However, evenin a situation where the companies cannot access these cash flows, the impact on their inancial profiles will not be significant,” it added.