Rupee appreciates: Too little too late for HPCL, BPCL, IOC

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Rupee appreciates: Too little too late for HPCL, BPCL, IOC

Oil marketing companies (OMCs) are in no mood to cheer a rise of Rs 3 against the dollar in last 20 days, which generally should have made them happy. Let’s find out reasons for OMCs like state-run Hindustan Petroleum, Bharat Petroleum and Indian Oil to consider this development as a non-event.

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Shaheen Mansuri & Riken Mehta
Moneycontrol.com

Oil marketing companies (OMCs) are in no mood to cheer a rise of Rs 3 against the dollar in last 20 days, which generally should have made them happy. Let's find out reasons for OMCs like state-run Hindustan Petroleum , Bharat Petroleum and Indian Oil to consider this development as a non-event.

The rupee which averaged at around Rs 53 against the greenback in December 2011 has strengthened to Rs 50 in the current month. OMCs, largest purchasers of dollars from domestic market are saving Rs 3 while buying a dollar to fund crude basket.

OMCs import around 50,000 barrels of crude each day, which is 80% of their requirement.

Now, with the rupee appreciating 5% month-on-month, and the crude cost being stable at  around $110/bbl m-o-m, fuel retailers, which paid Rs 29.15 crore in December to buy the commodity have paid Rs 27.5 crore and have saved a meager Rs 1.65 crore per day. This means they have saved Rs 33 crore in this month.

But this amount sounds miniscule if one were to compare it with Rs 1.9 lakh crore under-recoveries oil retailers they have already incurred on sale of petroleum products in the current financial year after rupee depreciated from 45 to 54 levels.

Companies incur revenue loss or under-recoveries since they buy crude from global market and later sell finished products like diesel, kerosene and liquefied petroleum gas (LPG) at government regulated prices to keep inflation in check.

However, the government partially compensates these companies for selling below cost each year. But, there is little certainty as to when and how much compensation the government will give to these companies for losses which they have already incurred.

To reduce the burden on under-recoveries, the government had said it will look into de-regulating LPG, kerosene and diesel prices but this issue is on the backburner due to the upcoming elections in five states. Similarly, oil companies cannot mull a petrol price hike, despite having the freedom to do so due to political reasons.