Rupee fall: Big jolt to oil marketing companies

Just when it appeared that the under-recovery on petroleum products would not exceed Rs 80,000 crore (Rs 800 billion), the fall in rupee to an all-time low of Rs 58 versus dollar came as a severe jolt to the oil marketing companies (OMCs). 

According to OMCs, at current exchange rate under-recovery is likely to increase by at least another Rs 30,000-40,000 crore (Rs 300-400 billion), taking the figure to above Rs 1,10,000 crore (Rs 1.1 trillion).

Taking into account of the drop in international prices, the finance ministry had recently stated that the subsidy on petroleum products would not exceed Rs 80,000 crore (Rs 800 billion), when the exchange rate was around Rs 54.

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“For per Rs 1 increase, the impact on under recovery would be around  Rs 9,000 crore (Rs 90 billion) annually.  In the last one month or so, rupee has depreciated by Rs 2-2.5. This means that, at present level, the subsidy figures are expected to cross the Rs 1,00,000-crore mark,” said PK Goyal, Director, Finance, Indian Oil Corporation told Business Standard.  

On the other hand, it is seen as a blessing in disguise for Reliance Industries as it bill gas consumers like fertilizer plants and power stations in US dollar.

For Oil and Natural Gas Corp (ONGC), which is also in the business of producing oil and gas, rupee devaluation should have worked to its advantage but for the subsidy burden it bears.

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“The worrisome thing is lot because of current account deficit. If you see rupee is falling, it is lot because of current account deficit. Finance ministry had recently come out with a statement that indicated even if subsidy burden comes down to Rs 80,000 crore, the share of upstream companies are likely to be around Rs 60,000 crore,” Sudhir Vasudeva, Chairman and Managing Director of ONGC told Business Standard last week.

The under-recovery on diesel had gone down to Rs 3.73 per litre in May, while that of kerosene and liquefied petroleum gas were at Rs 27.93 per litre and Rs 378.38 per cylinder respectively.

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“As far as diesel prices are concerned, we are anyways going for a monthly hike of 50 paise as per the decontrol measures by the government. We would get a clear picture about the impact in another five days and then a call would be taken on petrol prices,” said K V Rao, Director (Finance), Hindustan Petroleum Corporation Ltd (HPCL).

According to an Angel Broking report, the currency is poised for further weakening and could test levels of Rs 59 and 59.60 on the upside on a short-term basis, causing jittery nerves for OMCs. 

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“For the moment, international prices appear to be checked. But exchange rate would remain a serious concerns as far as under recovery for OMCs are concerned,” Debashish Mishra – Senior Director of Deloitte in India.

The average crude oil prices for the month of April and May were in  the range of $ 101.58 and $ 101.14 per barrel respectively, while the average figures of the financial year 2012-13 was $ 107.97.