Expect 50p diesel price hike to continue in 2014: BPCL

Q: With regards to diesel price hike issue, given that it is an election year, how hopeful are you and what could the order be? Do you think 50 paise regime will continue or do you expect it to be higher?

A: Over the past one year, roughly 11 months, we have had these price increases based on policy framework of the government and we have been pushing up the price by approximately 50 paise a month over the 11 months period. Going forward, as per the current policy statement, we do hope that we will be allowed to pass-through these increases over the next year also as part of the larger deregulation for diesel.

Q: We had an exclusive chat with the Finance Minister yesterday and one of the things he mentioned was that some of the Congress chief ministers had mentioned that they lost the urban vote because of the subsidy being taken off on LPG and diesel. There were two of them who suggested that LPG caps should be raised to 12. If that indeed were to happen, how would that impact your stock?

A: As far as we are concerned, it would have an impact on the customer pricing. If instead of 9 cylinders they would get almost 12 cylinders at subsidised price and for the last couple of years we have been getting 100 percent compensation from the government from all the three controlled products which is HSD, kerosene and LPG for domestic. So it is a question of the time lag by which the money comes in as far as the subsidy payments from the government and upstream is concerned, but for us at the bottom-line level it clearly would not have any implication with 100 percent compensation kicking in.

Q: Will you be looking forward to 2014 to monetise some of your upstream assets?

A: We have had some major success in Mozambique which has been disclosed and Brazil is also showing a lot of promise at the current stage. For us it is a long-term aspiration to become a truly integrated energy player and Mozambique and Brazil paved the way for our integration into the upstream revenues and hence, monetisation for us means remaining invested through the development stage. In the next 4-5 years we would see the monetisation happen through sales of both gas and oil from these blocks.

Q: What about the situation as far as under-recoveries are concerned? Where do they stand now for both diesel and kerosene?

A: For diesel the current under-recovery is around Rs 9.5/liter. For kerosene it has been around Rs 36-37/liter and as far as LPG is concerned, it has jumped up quite drastically now for December because LPG prices in international markets have gone up by around USD 200-250. So the subsidy which was around Rs 500-525 per cylinder has gone up to almost Rs 700 plus per cylinder at the current rates. The LPG prices do go up in winter months and then settles back once again by February or March. That is the trend.

Q: What is the outlook as far as refining margins are concerned? A couple of analysts have forecasted that by the end of FY14 gross refining margins (GRM) could be at around USD 4.5/barrel while in FY15 it could slip to around USD 4/barrel. What would your outlook be for refining margins as we head into New Year?

A: Our outlook would be fairly stable GRMs and especially in our case, for the past six quarters we have been having GRMs which average around USD 4-4.5/barrel. With current spreads, there are reports that suggest that crude prices could actually soften and there are predictions that it may come down closer to USD 100/barrel. Based on this the spreads remain more or less in sync. We would still see GRMs ranging in the region of around USD 4-4.5. So, I think it would remain flat.

There are very few new capacities coming up in the region and there are going to be closures because of the quality constraints that are going to be there. So all in all with demand remaining where it is the GRMs should be fairly stable, somewhere in the region of around USD 4.5/barrel.

Q: What is the current value of your upstream assets?

A: It is very difficult to say. Out of Rs 350 most of the analysts place it almost around between Rs 120-180/share for the upstream, but it is very difficult for me to put a number. It is there for everyone to see.

Q: Would you veer towards Rs 120 or Rs 180?

A: It would be very difficult for me to put a number, because the Mozambique data is only the resources that have been disclosed and Brazil, even the resources are yet to be disclosed. So, it would be premature for me to put a value at this point in time. Mozambique at least the valuations are there, because for 10 percent stake that Videocon has entered into the transaction, they have valued it at close to around USD 2.5 billion and till date we have spent on Mozambique close to around USD 350-400 million, so that is the direction as to what is the value as far as Mozambique asset is concerned.

Q: What is your profit on per liter of petrol?

A: Petrol varies between Rs 1.6/liter to Rs 1.75/liter. These are the gross margins before expenditures being charted off. Net of expenses would be varying between Rs 650/750/KL.

Q: Will you gift yourself a New Year today by charging us 50 paise more on diesel?

A: It is a policy framework and if you take it as a gift we would be very happy because there will be more gifts to follow thereafter based on the policy front, but I think the prices have to reflect market realities and that is the way the whole reform process is moving ahead and it is something which we need to be prepared in the larger interest of the economy.

Q: I said it is a gift to yourself, so is it coming later today?

A: We will await the final decision which we all would come to know by the end of the day.