‘Prolonged state intervention in auto fuels’ loss to retail prices and OMCs a negative’
‘Prolonged state intervention in auto fuels’ loss to retail prices and OMCs a negative’
Fitch Ratings wrote in a note on Wednesday that losses to oil marketing companies (OMCs) due to frozen retail fuel prices and the possibility of prolonged ‘state interference’ in pricing decisions pose downside risks to their credit profiles. produces.
Fitch said the fall in prices for gasoline, gasoil and liquefied petroleum gas (LPG) during the recent hike in crude oil prices has caused marketing losses for Indian oil marketing companies, which hit record high levels. But strong gross refining margins. These losses will put pressure on their profitability and credit metrics.
Fitch said the freedom in retail fuel pricing will help revive the Centre’s plans to disinvest public sector oil marketing major BPCL, whose sale process has been scrapped after losing interest from bidders.
“OMCs bear the largest share of the burden of increasing crude oil prices in 2022 with limited price hikes to end consumers despite government tax cuts,” the agency said.
While Fitch expects ‘near-term prices’ to continue to reflect the country’s fiscal needs, inflationary pressures and the Centre’s efforts to balance the financial health of OMCs, it has kept its marketing margins aligned with that of crude. emphasized the need. price movements.
“The government has in the past allowed OMCs to compensate for losses arising out of the temporary suspension of daily pricing in subsequent periods,” the rating firm said.
“Prolonged state intervention in auto-fuel retail prices and loss scenario in OMCs will be negative for their standalone credit profiles. This may lead to a rethinking of the government’s approach to fuel prices. We believe that the freedom for OMCs to control retail fuel prices will support the government’s efforts to restart BPCL’s disinvestment, should it choose to do so,” it concluded.