‘Prolonged State interference in auto fuels’ retail costs and losses for OMCs a unfavorable’
‘Prolonged State interference in auto fuels’ retail costs and losses for OMCs a unfavorable’
Oil advertising firms’ (OMCs’) losses on account of frozen retail gas costs and the prospect of extended ‘State interference’ in pricing choices pose a unfavorable threat for his or her credit score profiles, Fitch Ratings wrote in a notice on Wednesday.
Price-freezes for gasoline, gasoil and liquified petroleum fuel (LPG) throughout latest durations of elevated crude-oil costs have precipitated advertising losses for Indian oil advertising firms that outweigh robust gross refining margins, which can be at a file excessive, Fitch mentioned. These losses would stress their profitability and credit score metrics.
Freedom in retail gas pricing would additionally assist reboot the Centre’s plans to disinvest BPCL, the general public sector oil advertising main whose sale course of has been dropped after bidders misplaced curiosity, Fitch famous.
“The OMCs have borne the largest share of the burden of surging crude oil prices in 2022, despite government tax cuts, with only limited price rises being passed on to end consumers,” the company mentioned.
While Fitch expects ‘near-term prices’ to proceed to replicate the Centre’s efforts to steadiness the nation’s fiscal wants, inflationary pressures and OMCs’ monetary well being, over the long run, it emphasised the necessity for his or her advertising margins to stay aligned with crude oil value actions.
“The government has in the past allowed OMCs to recoup losses from the temporary suspension of daily price resets in subsequent periods,” the score agency mentioned.
“A scenario of prolonged State interference in auto-fuel retail prices and losses at the OMCs would be negative for their standalone credit profiles. This may lead to a rethink of the government’s approach to fuel prices. We believe freedom for OMCs to control retail fuel prices would support government attempts to re-initiate the divestment of BPCL, should it choose to do so,” it concluded.
Source: www.thehindu.com