New Delhi, May 23 : Global rating agency Moody said the government is unlikely to reverse fuel pricing deregulation because it remains committed to reforms.
Most petroleum products are sold at market-linked prices in India, except liquefied petroleum gas (LPG) and kerosene.
Te rating agency said it was expected the government could intervene to address record-high prices of petrol and diesel by reducing the excise duty on these products, especially if oil prices stay high.
Excise duties make up over 20 per cent of retail selling prices and were started in 2016 when oil prices fell.
The rating agency also said that higher oil price increases the risk of subsidy sharing for major oil PSUs ONGC and OIL.
The recent rise in crude oil prices, if sustained, increases the risk that the government of India (Baa2 stable) will ask state-owned companies – Oil and Natural Gas Corporation Ltd. (ONGC, Baa1 stable) and Oil India Limited (OIL, Baa2 stable) – to share the country’s fuel-subsidy burden, Moody said.
The two companies have not contributed to fuel subsidies since June 2015, but have in previous years paid for over 40 per cent of India’s annual subsidy bill.
“We expect the companies could be asked to bear part of the fuel subsidy if oil prices stay above $60 per barrel for the fiscal year ending March 2019 (fiscal 2019), because of the government’s widening fiscal deficit.”
Net impact of subsidy sharing will be manageable for ONGC and OIL. An estimated fuel subsidy could total Rs 340-Rs 530 billion in fiscal 2019, the highest since fiscal 2015, assuming Brent crude oil prices average $60-$80 per barrel in the period.
The government has budgeted for INR250 billion of fuel subsidies in fiscal 2019, leaving a shortfall of Rs 90-Rs 280 billion, which could be met by ONGC and OIL entirely, or in part if the government increases the budget allocation for these subsidies.
“However, even if we assume ONGC and OIL are required to bear the entire shortfall, their net realized price will be be $52-$56 per barrel, which is only marginally lower than or equal to $56 for fiscal 2018.” the rating agency said.
Stating that risk of subsidy sharing for oil marketing companies remains low, the agency said. the oil marketing companies – Indian Oil Corporation Ltd (IOCL, Baa2 stable), Bharat Petroleum Corporation Limited (BPCL, Baa2 stable) and Hindustan Petroleum Corporation Ltd. (HPCL, Baa2 stable) – will probably not be asked by the government to share the fuel subsidy. These companies have been asked to share less than 1 per cent of total fuel subsidies since fiscal 2012.
UNI.
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