Higher crude price to hurt state-owned oil firms: Icra

New Delhi: The rising crude prices could pose significant risks for the state-owned oil marketing companies (OMCs) if it continued.

“The spike in crude prices would lead to increase in the working capital requirements and short-term debt levels of OMCs, thereby negatively impacting their profitability. Further, if PSU OMCs are directed to share a part of higher  gross under-recoveries (GURs), it could be a key negative for their profitability,” said Icra.  

The ratings agency said that higher crude prices would also test the Centre’s resolve to keep prices of auto-fuels at market-determined levels, which would have material implications for private marketers.

“GURs on sensitive petroleum products are expected to be higher at Rs 220-250 billion (assuming average Indian basket crude price of $56-59 per barrel) as compared to our earlier estimates of Rs 160-200 billion (average crude price of $50-55 per barrel) for FY18. According to Icra’s estimates, for every $1 per barrel rise in Indian basket crude price, annual GURs will increase by Rs 10 billion and net import bill by $1.2 billion,” said K. Ravichandran, senior VP, Icra.

He said any further increase in GURs in ensuing years could increase pressure on Centre to increase subsidy allocation for the petroleum products. Moreover, there will be pressure on Centre to reduce the excise duty on auto fuels in order to soften the impact.