Oil PSUs tipped to post poor Q1 results

The same will hold good for IBP, the stand-alone marketeer, as also refiners like Chennai Petroleum Corporation, Kochi Refineries and the much-smaller Bongaigaon Refinery and Petrochemicals (BRPL). Observers, in fact, say that the chances of one of these companies posting a net loss cannot be ruled out.

BPCL, HPCL and IOC will be especially affected as they will need to balance their marketing and refining imbalances through inter-company purchases. Diesel prices have touched dizzy levels, but that cannot stop IOC from buying it from, say, BPCL though it takes its toll on the former’s bottomline.

The OCC has apparently acknowledged these problems and tabulated them before the Centre. It is almost impossible to conceive that the dues of the oil companies will be settled, given that there is not enough liquidity going around. Top priority has been given to squaring dues worth Rs 300 crore to IBP and Mangalore Refinery and Petrochemicals. "At the most, the OCC could be classified under the category of sundry debtors in the accounts of the oil companies," sources say.

According to them, there is no reason for the government to consider an issue of oil bonds as was done in 1997. This is because, unlike the scenario at that time, borrowing has become a lot easier for the oil PSUs as the criterion for obtaining a loan is the state of their balance sheets. A recent example is HPCL, which went in for a Rs 500 crore bond issue at extremely competitive interest rates.

The glaring issue of posting disastrous first quarter results still remains. Oil companies say that unless the cylinder compensation scheme is revived, they will be in all sorts of trouble. The problem of spiralling inventory costs is a fallout of the recent ban on inter-state movement of products by road.

Stocks of Light Diesel Oil (LDO), Furnace Oil (FO) and High Speed Diesel (HSD) have been piling up at distant locations like Barauni, Guwahati and Bongaigaon, while private players have been making the most of the situation. The ban was a fallout of a probe by the Central Bureau of Investigation on a massive scam, where diesel was allegedly delivered to fictitious customers in different states and at concessional rates.

According to sources, the ban has ensured that only local sales tax apply to product purchases. Consequently, inter-state price have been on the rise and it is easier for user industries to buy their requirements from companies like Reliance Petroleum (which sells carbon black feedstock) which have been exempt from the ban.

Imports of key products like LDO and FO is already happening in ports like Kandla and Mumbai and is being moved into the hinterland by private players. The oil PSUs, on the other hand, are faced with rapidly rising stocks and fear that this situation, if allowed to continue longer, will severely impact their profitability in the months to come. Naphtha stocks have not posed a serious concern as they are carried by rail, a permitted form of transport.

As experts argue, inter-state sales is a perfectly legitimate way to move products and the ban will effectively cripple the PSUs. "The Centre is right in examining the reasons that led to the diesel scam, but the modus operandi of such a probe will throw the working of refineries completely out of balance," they say.

Te oil PSUs believe that other bodies involved in the sales tax controversy are equally to blame. These include the departments of sales tax, civil supplies and explosives, which are the vital inputs to issuing licences to user industries.