"The credit quality of OMCs in India is likely to weaken for the rest of 2013-14, if the government continues to ask them to share a higher burden of the country's fuel subsidies"

Credit rating agency Moody’s Investor Services on Tuesday said rising crude oil prices in the international market and the continued depreciation of rupee are likely to impact the credit worthiness of state-owned oil marketing companies (OMCs) such as Indian Oil Corporation and upstream firms such as Oil and Natural Gas Corporation (ONGC) for the rest of current fiscal if the government continues to ask them to share higher fuel subsidies.

Moody’s in a statement said OMCs could end the fiscal on March 31, 2014 with a revenue loss of Rs.140,000-150,000 crore on selling diesel, domestic LPG and kerosene at subsidised rates. This is higher than Rs.130,000 crore under-recovery expected in June. “The reason for this upward revision is the ongoing depreciation of the Indian rupee (about 10 per cent since June) and rising crude oil prices (about 6 per cent),” it added.

Of the Rs.25,579 crore the OMCs lost in the April-June quarter, the government provided only 31 per cent or Rs.8,000 crore.

The rest of the losses were split between upstream firms (Rs.15,304 crore) and retailers (Rs.2,275 crore). The cash subsidy provided by Finance Ministry was lower than Rs.11,451 crore sought by the Petroleum Ministry.

It was also lower than 52.78 per cent of the Rs.161,029 crore revenue loss being made up through cash subsidy support of Rs.85,000 crore in 2012-13 fiscal.

“The credit quality of OMCs in India is likely to weaken for the rest of 2013-14, if the government continues to ask them, as it did in April-June, to share a higher burden of the country’s fuel subsidies,” it said.

Moody’s said it expected the government would fully reimburse marketing companies by the end of 2013-14 and reduce the burden on upstream companies.

The April-June quarter results for OMCs were negatively affected by a higher portion of the fuel subsidies, which was somewhat offset by higher refining margins.

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