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    HomeNewsBusinessCompaniesStable outlook for Indian oil and gas sector in 2011: Fitch

    Stable outlook for Indian oil and gas sector in 2011: Fitch

    Fitch Ratings said, in a just published report, that the outlook for India's oil and gas industry is stable for 2011. This is based on the agency's expectation that ties between the government and its majority-owned oil companies will not weaken.

    January 17, 2011 / 11:33 IST
       
       
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      Fitch Ratings said, in a just published report, that the outlook for India's oil and gas industry is stable for 2011. This is based on the agency's expectation that ties between the government and its majority-owned oil companies will not weaken. India's state-owned oil companies dominate the sector, and Fitch links their ratings with that of the sovereign because of the sector's strategic importance and the evidence of tangible financial support. Consequently, these companies' stable outlooks reflect that of the sovereign.


      "Unless crude oil prices rise significantly, the market-linked petrol pricing regime that was implemented in 2010 will continue to operate in 2011. However, the agency does not expect diesel price reform in 2011 as the fuel has a higher impact on reported inflation, which is one of the government's key economic concerns," says Abhinav Goel, Senior Director in Fitch's corporates team.


      The government marginally increased the prices of cooking fuels -- liquefied petroleum gas (LPG, domestic use) and kerosene (public distribution system) in 2010. However, these continue to be subsidised, and Fitch believes that these will remain at levels set by policy requirements, rather than at market prices even in 2011. Consequently, under-recoveries -- which result when tariffs are insufficient to cover costs -- will remain high for these fuels.


      "The revision in the Outlook for the downstream public sector to Stable from Negative in June 2010 was based on Fitch's expectation that the government will continue to maintain the oil sector reforms introduced in 2010, and support these companies given their role as the government's extended arm for policy implementation," Goel added.

      Fitch notes that India's surplus in refining capacity will continue with the commissioning of new facilities in 2011 and beyond. However, public sector refiners are partially protected by price controls. Private sector company, Reliance Industries (Reliance, 'BBB'/Stable), has significant export revenues, benefiting from more complex refineries than most international competitors.

      first published: Jan 17, 2011 11:31 am

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