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Oil retailers pare gains, govt seen cautious

Oil retailers pare gains, govt seen cautious
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First Published: Thu, Feb 04 2010. 04 33 PM IST
Updated: Thu, Feb 04 2010. 04 33 PM IST
Mumbai: Shares in Indian state-run oil retailers pared gains on Thursday as the government was unlikely to fully adopt a panel recommendation to deregulate gasoline and diesel prices.
Fuel pricing is a sensitive issue in India, where the government sets retail prices of petrol, diesel, cooking gas and kerosene to help control inflation and protect consumers, particularly the poor, from sharp fluctuations in energy prices.
The likely scenario was for India to partially implement the panel’s advice to lift control of pricing on gasoline and diesel but stop short of more sharp price hikes on cooking fuels.
“Even partial decontrol, and that too of just petrol and diesel, will mean relief for the oil marketing companies and ONGC,” said Bivek Anand, director at KPMG Advisory Services.
Shares in Indian Oil and Bharat Petroleum closed up 0.2% and 0.4%, respectively, after initially rising up to 2.7%, in a weak Mumbai market that fell 1.6%.
Hindustan Petroleum ended down 0.8% after having risen earlier.
The fuel-price controls have affected profits of the state oil marketing firms that are forced to sell fuel at below-market rates.
The government partially compensates these firms, usually by giving them bonds, while state-run energy producers such as Oil and Natural Gas Corp and Oil India also bear a burden by selling oil at low rates.
A lack of clarity on the price-setting and subsidy system means analysts arrive at often disparate earnings estimates, leaving the companies significantly undervalued.
Any move to lift the government cap on fuel prices would help Indian energy major Reliance Industries and Essar Oil resume retail sales of oil products, as no compensation mechanism is available for private firms.
ONGC shares rose 0.6% to Rs1,139.50, while Reliance Industries, whose interests include refining and exploration, fell 1.4% to Rs1,019.40.
Shares in Essar Oil were down 2.4% at Rs138.95, while state explorer Oil India shed 1% to Rs1,179.45.
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First Published: Thu, Feb 04 2010. 04 33 PM IST
More Topics: Oil retailers | Shares | Petrol | Diesel | Cooking gas |