Thursday 14 February 2008

India Raises Retail Fuel Prices After 20 Months

India's Cabinet approved an increase in retail gasoline and diesel prices for the first time in 20 months to lower the burden of record crude oil costs on state-run refiners. Shares of refiners rose.

Gasoline prices were raised by 2 rupees (5 U.S. cents) a liter, Oil Minister Murli Deora told reporters in New Delhi today. Diesel prices were raised by 1 rupee a liter. The price changes are applicable from midnight.

The increase will ease the strain on the finances of Indian Oil Corp., the nation's biggest refiner, and its counterparts. India caps retail fuel prices to control inflation and hadn't increased them since June 2006, even as oil rose 57 percent in 2007 and surged to $100 a barrel last month. The cap was earlier expected to cost refiners $18 billion in the year ending March 31.

The refining companies will gain 8.4 billion rupees until the year ending March 31, from the price increase, Deora said.

``This will add about 4.1 billion rupees to our revenue this quarter and 33 billion rupees for the fiscal,'' S.V. Narasimhan, director of finance at Indian Oil, said over the phone from New Delhi. ``The rise certainly boosts our profitability, though we also need to see how much we get through bonds.''

The refiner loses 1.7 billion rupees every day by selling gasoline, diesel and cooking fuel below market prices, Chairman Sarthak Behuria said on Jan. 31. Indian Oil's net profit in the three months ended Dec. 31 rose 17 percent to 20.9 billion rupees, helped by higher income from processing crude oil into fuels and by the rupee's appreciation.

Shares Rise

Indian Oil rose 14 percent, the most since Jun. 15, 2006, in Mumbai trading. They advanced 65.2 rupees to 536.75 rupees at the 3:30 p.m. close on the Bombay Stock Exchange. Hindustan Petroleum Corp. climbed 15 percent to 297.60 rupees and Bharat Petroleum Corp. rose 11 percent to 465 rupees.

``These measures will give a temporary relief,'' said K.K. Mital, chief investment officer of Escorts Asset Management Ltd. in New Delhi. ``But what we as investors are looking for is a long-term solution to the fuel-pricing issue.''

Gasoline in New Delhi is currently priced at 43.52 rupees a liter and diesel at 30.48 rupees a liter. Fuel prices vary across the country because of local taxes and final details of the rates to be charged haven't been issued yet.

Refiner Losses

Hindustan Petroleum on Jan. 28 reported a net loss of 157.3 million rupees in the three months ended Dec. 31, compared with a profit of 4.07 billion rupees a year earlier. Bharat Petroleum on Jan. 31 said third-quarter profit fell 4 percent to 2.91 billion rupees from 3.04 billion rupees a year earlier.

Part of the refiners' losses is compensated by the government, which gives them bonds and asks Oil & Natural Gas Corp., the nation's biggest explorer, and other state-run oil companies to share the subsidy.

Indian Oil and other refiners got 112.5 billion rupees of bonds from the government on Jan. 18. The bonds maturing in 2025 will pay 7.95 percent interest, the finance ministry said.

Refiners will get 234.6 billion rupees of bonds for the year to March 31, Priya Ranjan Dasmunsi, parliamentary affairs minister, said Oct. 11. They received 241.2 billion rupees of bonds in the previous fiscal year.

The oil ministry is seeking to get refiners as much as 570 billion rupees of bonds as compensation, Deora said today.

Oil Prices, Inflation

Pump prices of diesel and gasoline were last raised in June 2006, when crude traded at $72.60 a barrel on the New York Mercantile Exchange. Cooking gas prices have been capped since April 2005.

Crude oil for March delivery was at $93.57 a barrel, up 30 cents, in after-hours electronic trading on the New York Mercantile Exchange at 10:29 a.m. in London today. Yesterday, the contract rose 49 cents, or 0.5 percent, to $93.27 a barrel.

Inflation may rise if the government lifts the cap on retail fuel prices, India's central bank said on Nov. 27.

``The increase in oil prices will further push up inflation, which is already inching up,'' said Dharmakirti Joshi an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor's. ``The impact of the increase will be more in the secondary market, like transportation costs will go up.''

Inflation accelerated to 4.11 percent in the week ended Jan. 26, the highest in more than five months, as prices of fruits, spices and salt increased, the Ministry of Commerce and Industry said on Feb. 8.

India's rupee advanced 12.3 percent in 2007, making it the best performer in Asia after the Philippine peso, according to data compiled by Bloomberg.