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New Delhi: Government-owned oil marketing companies (OMCs) may witness a 52% jump in losses on account of selling fuel below cost at state-mandated prices to 2 trillion in the next financial year, said R.S. Butola, chairman, Indian Oil Corp. Ltd (IOC), the nation’s largest fuel retailer.

Such an increase will impact the financials of government-owned OMCs such as IOC, Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL), which currently register losses from this of 439, 12.04 and 28.54 on a cooking gas cylinder, one litre of diesel and the same volume of kerosene, respectively.

The average price of crude oil in the Indian energy basket on 13 March was $124.84 per barrel.

While India partially deregulated fuel prices in June 2010, allowing government-owned OMCs to fix the price of petrol instead of selling it at government-determined rates, prices are only raised after government approval. Petrol price increases have been put on hold due to the state assembly elections in Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa.

The total losses on this account to be borne by refiners this fiscal is expected at 1.32 trillion compared with 78,190 crore last year, according to the petroleum ministry. In the nine months ended December, it stood at 97,313 crore.

Credit rating firm Crisil Ltd said in a report last month that it expects the Congress-led United Progressive Alliance government to raise the prices of regulated fuels such as diesel, cooking gas and kerosene in the wake of rising crude oil prices due to “ongoing geopolitical tensions" over Iran. India depends on imports to meet 80% of its oil needs.

“Average crude oil prices will remain firm in the range of $110-120 per barrel during 2012, higher than the earlier estimates of $100 per barrel, despite a weak global economy," Crisil said in its report.

While the government promised to offset 30,000 crore of the 64,900 crore registered as losses from selling fuel below cost by the oil refiners in the first half of 2011-12, there were delays in disbursement. In addition, a contribution of 21,633 crore was also been made by oil and gas explorers, including Oil and Natural Gas Corp. Ltd, Oil India Ltd and GAIL (India) Ltd, as discounts. The residual 13,267 crore had to be absorbed by the refiners.

With crude oil prices averaging $113 per barrel in the first nine months of the first year, compared with the expectation of $110 per barrel, the losses on this front amounted to 973 billion, said a 7 March report from the IDBI Capital Market Services Ltd equity research desk.

“Further, upstream subsidy burden stood at 37.9% in 9MFY12, which we expect to increase to 42% in FY12E," it said. “Also, government contribution till date announced is at 300 bn (billion), which is just 31% of the total UR (under-recovery). Consequently, oil marketing companies are facing severe liquidity concern and their debt levels are at all-time high levels. If crude oil price remains at current levels then total under-recoveries may go up to 1.4tr in FY12E."

IOC, HPCL and BPCL would have posted a combined net profit of 5,246 crore for the?year ended 31 March 2011, had they not absorbed a notional cumulative loss of 6,894 crore on selling fuel below cost.

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