By HARSH JOSHI
India's oil refiners are back in the line of fire. This year more than ever, their fortune depends on New Delhi's actions.
Shares of the three biggest—Bharat Petroleum, Hindustan Petroleum and Indian Oil—have fallen by an average of 16% so far this year. Investors have been quick to anticipate the squeeze these companies face thanks to India's policy of setting the market price of most fuels without considering global oil prices.
If this means the refiners have to sell their products at a loss, New Delhi compensates them—in part. The trouble for stock investors is that the timing of that compensation, and its size, is largely a guessing game.
In the April-December period, New Delhi paid for 46% of the losses. As it looks to control spending next year, expecting more aid could be wishful thinking: In its annual budget for the upcoming fiscal year, the government lowered the planned subsidy amount by 5% from the current year's $4.6 billion.
True, New Delhi often increases this bill during the course of the year. But even if it triples its initial estimate, that won't be enough to match the expected losses, which Deutsche Bank predicts could touch $22 billion. Anyway, the payments are a temporary and partial solution. What is more critical to watch out for this year is how New Delhi implements its policies.
Here, the government has recently shown some intent. It is gradually attempting to free market prices from its control. Last year, it removed price caps on gasoline and has said it will do the same for diesel, thus easing the pressure on refiners.
Moreover, the finance minister has created a team to work out a mechanism by which subsidies on other fuel, such as kerosene, can be given to consumers directly—mainly India's poor—instead of to the companies. This would allow companies to raise prices and cut down on losses. The first report of this committee is expected by June.
Until then, it's all about having faith in New Delhi's charity.
Write to Harsh Joshi at harsh.joshi@dowjones.com
沒有留言:
張貼留言