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MOTORINDIA
l
February 2012
OMCs’ under-recoveries at
Rs. 1.4 trillion: CRISIL
The Government and public sec-
tor oil companies – both upstream
oil companies and OMCs – typi-
cally share the under-recoveries
in a proportion determined by the
Government every year. In line with
the sharing pattern since 2006-07,
CRISIL Research expects the Gov-
ernment to contribute at least 50 per
cent of the under-recoveries – about
Rs. 700 billion – as compensation to
OMCs during the current fiscal year.
Upstream oil companies are likely to
share about 40 per cent of the under-
recoveries – Rs. 560 billion – as up-
stream assistance to OMCs, up from
33 per cent in the past. OMCs are
likely to absorb the remainder – Rs.
140 billion – as marketing losses,
twice their marketing losses of Rs.
70 billion in 2010-11.
“The mounting under-recoveries
lubes & fuels
may force the OMCs into the red for
the first time in their history, as the
shrinking profits from their refining
business will not be enough to off-
set the marketing losses. The gross
refining margins of the OMCs fell
to $2.2 per barrel in the first half
of 2011-12 from $4.1 per barrel in
the first half of 2010-11. Reflect-
ing this fall, the refining profits for
2011-12 are likely to decline by 25-
30 per cent to Rs. 120-130 billion”,
says Sridhar Chandrasekhar, Head,
CRISIL Research.
The rising under-recoveries have
also severely hit the liquidity of
OMCs in the current fiscal year.
Their aggregate gearing rose to a
grim 2.2 times at the end of Sep-
tember 2011, from 1.2 times at the
end of March. Although the Gov-
ernment had committed to release
Rs. 300 billion during the first half
of the year, it released only Rs. 80
billion till December 2011. OMCs,
therefore, had to resort to higher
short-term borrowings to meet their
working capital requirements.
Even if the Government addition-
ally releases Rs. 350-400 billion to
OMCs over the next three months,
their aggregate gearing will still be
high at close to two times by the end
of March 2012. Hence, timely sup-
port from the Government will be
critical for OMCs to manage their
liquidity.
w
CRISIL Research expects under-recoveries on sale of regulat-
ed fuels to touch an all-time high of Rs. 1.4 trillion in 2011-12
due to high crude oil prices and a weak rupee. Under-recover-
ies which are the losses incurred by public sector oil market-
ing companies (OMCs) from the sale of fuels at a discount to
the cost price are affecting their profits and liquidity. Timely
compensation from the Government will be critical for them
to manage their liquidity.