The government directive to state-owned fuel retailers to subsidise petrol and diesel will have a negative impact on their profitability and credit metrics, Fitch Ratings said Friday.
While cutting excise duty by Rs 1.50 per litre, the government had Thursday asked Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) to absorb Re 1 per litre increase in fuel rates.
Fitch, however, said the ratings of the three firms will be unaffected as they are driven by state support. The ratings of BPCL and IOC are equalised with the sovereign, while that of HPCL is aligned with its parent, Oil and Natural Gas Corporation Ltd (ONGC).
“The government reduced the prices of petrol and diesel by Rs 2.50 per litre on October 4, 2018 in response to rapid increases since the start of the year – the diesel price in Delhi, for example, has risen by 27 per cent. “Excise duty on these fuels has been cut by Rs 1.50, but the state oil marketing companies (OMCs) have been directed to bear the cost of the additional Re 1 per litre,” Fitch said.
Fuel prices will continue to be adjusted daily depending on future market moves, but the margins earned by OMCs have effectively been narrowed, which amounts to an implicit subsidy for consumers, it said. Read More