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PSU oil cos may sink into red in absence of government life jacket

Three oil navratnas - Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) - could turn sick and slip into red if the government does not step in immediately to restore the financial health of the companies, a se...

, ET Bureau|
Jan 23, 2009, 02.58 AM IST
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NEW DELHI: Three oil navratnas ��� Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) ��� could turn sick and slip into red if the government does not step in immediately to restore the financial health of the companies, a senior petroleum ministry official said.

The petroleum ministry has cautioned the committee of secretaries (CoS) that the estimated combined loss of the three companies is expected to be around Rs 8,000 crore in Q3. Financial results of the three companies are expected by the end of this month. The combined net loss of the three companies was Rs 14,431 crore for the first half of 2008-09.

���Reporting of losses by OMCs (oil marketing companies) has significantly eroded their net worth. The debt-equity ratio of BPCL and HPCL has increased to alarming levels of 2.26 and 4.15, respectively. Credit rating of all three OMCs has been downgraded by the rating agencies. In case the decline in financial position is not arrested, OMCs may become BIFR (Board for Industrial & Financial Reconstruction) cases,��� a government official said on condition of anonymity.

The meeting, held last month, was chaired by Cabinet secretary KM Chandrasekhar. BIFR, set up in 1987, determines sickness of a company and decides whether it can be revived or should face closure.

In fact, OMCs are facing acute liquidity crunch. ���Against oil bonds amounting to Rs 44,967 crore sanctioned to OMCs for the first half of 2008-09, bonds of only Rs 7,044 crore have been issued, and the remaining bonds are yet to be issued.

Due to the delay as well as incurrance of under-recoveries, the combined borrowing of OMCs has increased from Rs 66,900 crore as on March 31, 2008, to the unprecedented level of Rs 1,15,000 crore up to November 30, 2008,��� he said, quoting a petroleum ministry���s report submitted at the meeting.

Under-recovery is the notional loss suffered by the three public sector oil companies for selling four petroleum products ��� petrol, diesel, kerosene and LPG cooking gas ��� below cost.

The loss is partially met by the public sector upstream companies such as ONGC and Oil India as well as through government bonds. The balance loss gets reflected in the balance-sheet of the three oil companies.

The under-recovery, which was estimated at Rs 2,45,305 crore (for 2008-09) in August 2008, has been revised to Rs 1,01,445 crore. It has decreased substantially due to falling crude oil prices, an oil company official, who didn���t wish to be named, said.

Global crude oil prices are currently hovering around $40 a barrel from the peak of $147 a barrel in July 2008. Due to the slump in global crude oil prices, the three OMCs are making profits at pump prices of petrol and diesel. However, they are still losing money on the sale of kerosene and LPG.

According to an IOC official, the company is currently making a profit of Rs 7.40 a litre in retail sale of petrol and Rs 2.50 on diesel. On the other hand, the company is losing Rs 12.20 on the sale of every litre of kerosene and Rs 33 on the sale of every 14.2-kg cooking gas cylinder.
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