New Delhi: Government-owned fuel retailers in India took a $2.25 billion hit in revenues by holding back from increasing pump prices in the run-up to local elections, according to a note from Moody’s Investors Service.
Revenue loss for Indian Oil Corp., the biggest fuel retailer, is estimated at $1 billion-$1.1 billion for capping gasoline and diesel rates between November and the first three weeks of March, Moody’s analysts, including Sweta Patodia, wrote in the note on Thursday. Bharat Petroleum Corp. and Hindustan Petroleum Corp. are estimated to have lost $550 million-$650 million each based on average sales volume.
“This loss in revenue will add to the short-term borrowings, funded with working capital lines, of the refiners until such time that crude oil prices stay at elevated levels,” Moody’s analysts said in the note.
While state-run fuel retailers, who control more than 90% of the market, are technically free to align prices with global rates, they often freeze rates before polls fearing a public backlash over high prices. This time too, the three companies held back increasing prices until elections concluded in five states, most notably in Uttar Pradesh, despite a surge in international prices.
Pump rates were increased by about a cent per liter for two days since March 22, after the longest stretch of unchanged prices since government-owned retailers moved to daily revisions in 2017.
“This underpins our expectation that the price increases will be gradual and occur over a period of time rather than being a one-time adjustment,” according to Moody’s note. Pump prices weren’t increased on Thursday as opposition lawmakers protested in India’s parliament.
At an average oil price of $111 a barrel, the three firms will together incur a daily loss of $65 million-$70 million on the sale of gasoline and diesel unless prices are increased, Moody’s estimates.- Bloomberg
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