IOC, BPCL, HPCL incurred revenue loss of $2.25 billion in March due to fuel prize freeze

Petrol and diesel prices remained unchanged between November 4, 2021, and March 21 even as crude oil prices averaged around $111 per barrel in the first three weeks of March compared to around $82 in early November.

The government-owned oil refiners increased petrol and diesel prices by 80 paise per litre each.

"Based on current market prices, the oil marketing companies are currently incurring a revenue loss of around $25 (over Rs 1,900) per barrel and $24 per barrel on sale of petrol and diesel, respectively,” Moody’s said in a report.

If crude oil prices continue to average around $111 a barrel, the three rated entities – IOC, BPCL and HPCL – will incur a combined daily loss of around $65-70 million on the sale of petrol and diesel unless fuel prices are increased to cover the rising crude oil prices, it said.

"Based on our estimates of average sales volume between November and first three weeks of March, the state-owned refining and marketing companies together have lost around $2.25 billion in revenue on petrol and diesel sales,” Moody’s said.

This equals to around 20 per cent of the combined FY2021 EBITDA for the three entities.

"This loss in revenue will add to the short term borrowings, funded with working capital lines, of the refiners until such time that crude oil prices stay at elevated levels."

"Over time, the companies might be able to make up for some of these losses if oil prices come down,” it added.

"We do expect that the government will allow the refiners to adjust prices appropriately and avoid a situation where refiners continue to make losses of this magnitude for a prolonged period,” it said.

Moody’s said price increases will be gradual and occur over a period of time rather than being a one-time adjustment.

"Until such time, the refining and marketing companies can cover the increase in feedstock costs either by an increase in selling prices or a reduction in excise duties or both, they will have to continue to absorb a proportion of the increased feedstock costs which will hurt their profitability and increase borrowings,” it said.