With crude prices increasing by $10 per barrel during the third quarter, public sector oil marketing companies are expected to report a combined loss of around Rs 2,250 crore (Rs 22.5 billion) for the quarter.
Indian Oil, Bharat Petroleum and Hindustan Petroleum Corporation had recorded a combined profit of Rs 9,524 crore (Rs 95.24 billion) in the second quarter.
The OMCs may, however, close the finacial year in the black with the government compensation expected to come by March.
The three companies posted a loss of Rs 6,990 crore (Rs 69.9 billion) in the April-June quarter but with the government share of subsidy coming in the second quarter, they were able to show a combined net profit of Rs 9,524 crore (Rs 95.24 billion).
"The OMCs will show losses in the absence of government compensation. However, the situation may change when they declare the full year result after accounting for the government subsidy," said Niraj Mansingka, research analyst at Edelweiss.
The underrecovery, or the revenue loss on selling diesel has risen by Re 1 to Rs 7 a litre this fortnight.
The oil companies are also losing Rs 19.60 per litre on kerosene sales and Rs 366 for every 14.2-kg LPG cylinder.
When the companies had raised petrol prices by Rs 2.95-2.96/litre last month, they were left with a loss of Rs 1.25 on petrol which they did not pass on even though petrol price is out of government regulation. This loss has now widened to Rs 2.
"With petrol prices free, the government or upstream companies will no more compensate the OMCs for losses on petrol except for Rs 2,227 crore incurred in the first quarter prior to deregulation," said a senior petroleum ministry official.
The OMCs are incurring a daily loss of Rs 70 crore (Rs 700 million) on diesel, Rs 43 crore (Rs 430 million) on LPG and Rs 38 crore (Rs 380 million) on kerosene.
At this rate, these companies could end the financial year with a gross underrecovery of Rs 73,000 crore (Rs 730 billion).
The OMCs are, however, hopeful that their loss will be fully compensated by the year-end.
"The government has made it clear that the OMCs will not suffer losses. We hope that compensation will come by year end," said S K Joshi, director (finance), BPCL.
Oil Secretary S Sundareshan had said: "The under-recoveries of OMCs would be adequately and fully addressed by the burden-sharing mechanism, wherein the revenue loss is partly made up by upstream firms, partly by the government and if possible, a small portion is borne by the OMCs themselves."
The OMCs, which purchase crude oil at market rates, are required to sell diesel, kerosene and LPG at government-subsidised prices, resulting in losses.
These losses are usually compensated by a mix of cash subsidy from the government and discounts from upstream companies like Oil & Natural Gas Corporation and Oil India Ltd.
The December average price for the Indian basket of crude has been close to $90 per barrel.
The basket of crude oil has averaged around $89.78 per barrel in December, up 6.55 per cent from the November average of $84.26.
The current fiscal average price is $79.35 per barrel, up 13.74 per cent from the FY09 average of $69.76.
The OMCs lost Rs 31,367 crore (Rs 313.67 billion) in revenues during the April-September period on selling diesel, domestic LPG and kerosene below cost.
This also includes Rs 2,227-crore (Rs 22.27 billion) loss on selling petrol below cost till June 25 when its pricing was decontrolled.
Of the revenue loss, upstream oil firms have made up for Rs 10,456 crore (Rs 104.56 billion).
The government had provided for Rs 3,108 crore (Rs 31.08 billion) in the Budget.
Though an additional Rs 14,000 crore (Rs 140 billion) has been provided in the second supplementary to the Budget, OMCs have already taken this on their 2009-10 books.
With crude prices increasing by $10 per barrel during the third quarter, public sector oil marketing companies are expected to report a combined loss of around Rs 2,250 crore (Rs 22.5 billion) for the quarter.
