The cash-strapped oil companies are hopeful of some relief soon as the mini-package announced by the Reserve Bank of India [Get Quote] last week eases liquidity but does not address the issue of profitability.

The three oil marketing companies -- Indian Oil Corporation [Get Quote], Bharat Petroleum Corporation Ltd [Get Quote] and Hindustan Petroleum Corporation Ltd [Get Quote] -- are losing over Rs 500 crore (Rs 5 billion) per day as they sell petrol, diesel, kerosene and LPG at subsidised prices.

The under-realisation bill for the current year is projected to balloon to Rs 2,35,000 crore (Rs 2,350 billion), a three-fold increase over last year, due to high crude oil prices.

"I am sure other measures will come. The RBI's move will solve our immediate cash problem but will not improve our profitability. There is a full year ahead. Only this will not help. It will not address the under-recovery problem," said Sarthak Behuria, chairman of IOC, the country's largest oil marketing company.

IOC recently decided to restrict supplies of auto fuels due to financial pressures -- the company posted a net loss of Rs 414 crore (Rs 4.14 billion) for the quarter ended March 2008 against a profit of Rs 1,503 crore (Rs 15.03 billion) in the same period last year.

"Last fiscal, our net under-realisation rose to Rs 9,774 crore (Rs 97.74 billion) from Rs 2,190 crore (Rs 21.9 billion) in 2006-07," Behuria added.

The much-awaited relief package, expected to be announced this week, is likely to include a price hike, duty cuts and an increase in the quantum of oil bonds to be issued by the government. "The real issue is hike in product prices," he said.

HPCL Director (finance) B Mukherjee said the RBI's move was a short-term treasury management measure. HPCL's daily under-realisation is Rs 115 crore (Rs 1.15 billion).

To bring the under-realisation to zero, the price of petrol will have to be hiked by Rs 16.34 per litre, diesel by Rs 23.49 per litre, kerosene by Rs 28.72 and LPG by Rs 306 per cylinder.

Moderate hikes such as the Rs 2 per litre increase in price of petrol and Re 1 per litre in diesel in February 2008, are of little help to the companies, whose under-recoveries -- the gap between the subsidised selling price and the desired selling price -- have bloated due to high crude oil prices.

These under-recoveries are partially met by the issue of oil bonds by the government.