Oil firms may register Q2 profit, but will remain in red for first half

Oil firms may register Q2 profit, but will remain in red for first half

Public sector oil marketing firms—Indian Oil, Bharat Petroleum and Hindustan Petroleum—will have something to cheer about this Diwali as the second quarter numbers are likely to be positive, thanks to the last-minute “letter of comfort” from the Finance Ministry that will take care of the subsidy the oil firms provide to the common man on the sale of diesel, LPG and kerosene below market prices.

Sources say the ministry has sent a “letter of comfort” worth Rs. 30,000 crore to the three oil marketing firms.

Confirming the news, R.S. Butola, chairman of Indian Oil, the country’s largest fuel retailer, told NDTV: “Yes, we have received comfort letter of Rs 16,094 crore yesterday.”

Similarly, the Hindustan Petroleum chairman too confirmed the news and told NDTV: “Our share in the Rs 30,000 crore will be around Rs 6,600 crore”.  Rest of the Rs 7,306 crore out of Rs 30,000 crore is meant for Bharat Petroleum.

However, Mr. Butola cautioned that “this is only a letter of comfort and no payment has been made as such”. So it will only be incorporated for “accounting purpose”. Another official, who don’t want to be quoted, said that despite this (compensation or letter of comfort), the oil PSUs will remain in the red for the first half of the fiscal (2012-13).

Another official in the Petroleum Ministry clarified and said: “Our (Petroleum Ministry’s) demand from the Finance Ministry was for more than Rs 43,000 crore for the first half and what we got is substantially lower than that.”

Oil firms reported a loss of Rs 40,536 crore in the first quarter of 2012-13, as they didn’t get any compensation or letter of comfort then. The compensation that has come now will only be accounted for the second quarter.

Apart from the government compensation, the oil marketing PSUs also get payment from sister oil exploration PSUs—ONGC, OIL and even GAIL (called as upstream contribution). For the second quarter, Indian Oil, Bharat Petroleum and Hindustan Petroleum have already got Rs 15,060 crore from the upstream firms. Though the payment from the upstream firms comes on a regular basis, the government’s actual cash payment comes very late, putting additional pressure on the oil firms.

For the working capital, Indian Oil, Bharat Petroleum and Hindustan Petroleum keep borrowing funds from the banks and because of the delayed payment, the interest cost keeps going up, which is not compensated by the Finance Ministry. The Finance Ministry will make the actual payment of Rs 30,000 crore only after they put the supplementary demand for grant in Parliament in the upcoming winter session, which starts in December.

According to sources, technically Indian Oil will announce a profit of around Rs 3,500 crore and Bharat Petroleum and Hindustan Petroleum, too, will announce profit of around Rs 1,800-2,000 crore each in the second quarter, but for the fiscal till date (or the first half) the oil firms will still remain in losses.