November 15, 2010 at 7:40 pm #2466
Indian Oil Profit Surges, Surpassing Estimates, After Subsidy Compensation
By Rakteem Katakey – Nov 13, 2010 5:50 AM CT
Indian Oil Corp., the nation’s biggest refiner, posted a more than 18-fold increase in second- quarter profit, beating analysts’ estimates, after the government compensated it for selling fuels below cost.
Net income rose to 52.9 billion rupees ($1.18 billion) for the three months ended Sept. 30, from 2.8 billion rupees a year earlier, the state-run refiner said in a statement to the Bombay Stock Exchange today. That compares with the average 10.6 billion rupee estimate of 16 analysts surveyed by Bloomberg.
The profit gain may bolster efforts by Prime Minister Manmohan Singh‘s administration and the company to sell shares in the first quarter of next year as record overseas investments pushed the benchmark Sensitive Index to a record this month. The government freed gasoline prices from state control in June while continuing to set rates for other fuels, including diesel.
“State-run refiners depend too heavily on government support,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi in southern India, said before the earnings were announced. “The government supported them this quarter and we don’t know what will happen in the next.”
Shares of the refiner have gained 32 percent this year, outpacing the 15 percent increase in the benchmark Sensitive Index. The stock fell 1.3 percent to 402.55 rupees in Mumbai trading yesterday. The stock market is closed in India today.
Indian Oil, based in New Delhi, sells diesel, kerosene and cooking gas below cost to help the government curb inflation. State refiners are partly compensated by the government and oil producers including Oil & Natural Gas Corp. and Oil India Ltd.
The government gave Indian Oil 72.2 billion rupees as compensation in the quarter, according to today’s statement. The refiner didn’t account for any payment a year earlier.
Gasoline prices were increased four times since the price controls were removed on June 25, according to the company’s website. “This is a step in the right direction as it helps reduce the refiners’ dependence on subsidies,” Mathews said.
Crude oil in New York gained 12 percent to an average $76.20 a barrel in the quarter, boosted by demand from India and China, Asia’s two fastest-growing major economies. Oil rose to this year’s high of $88.63 a barrel on Nov. 11. The December contract fell $2.93 to settle at $84.88 a barrel on the New York Mercantile Exchange yesterday.
Indian Oil’s average gross refining margin for the quarter was $6.63 a barrel compared with $3.62 a year earlier, the company said. Sales rose 15 percent to 693.4 billion rupees.
Hindustan Petroleum Corp. reported second-quarter profit of 20.9 billion rupees and Bharat Petroleum Corp. posted net income of 21.4 billion rupees. Both state refiners had losses a year earlier.
The government plans to sell a 10 percent stake in Indian Oil in the three months ending March 31 as part of an asset-sale program aimed at cutting the budget deficit. The refiner will simultaneously offer fresh shares equivalent to a similar stake to reduce debt as it builds a new refinery and looks for possible ventures overseas.
Indian Oil operates about 33 percent of the nation’s refining capacity and is building a new 15 million metric ton-a- year plant in the eastern state of Orissa. The company added 3 million tons of capacity at its Panipat refinery this month. Before the expansion, Indian Oil and its unit had a combined capacity of 61.7 million tons a year, according to its website.
The government holds a 79 percent stake in Indian Oil.
To contact the reporter on this story: Rakteem Katakey in New Delhi at firstname.lastname@example.org.
November 15, 2010 at 7:44 pm #5407
Here is IOC Refinery Earnings update which claims surge in profit that represents 18-fold increase for 2Q 2010…..which doesn’t make a lot of sense because the ~21 Billion rupee net profit occurred only after the government compensated it by over 72 Billion rupee’s! The government owns 79% of IOC who represents over 1/3 of India refining capacity.
This is part of growing problem for US refineries since subsidized cheap import fuels are stealing capacity away from them and the strong demand for crude to China & India refineries is driving up crude prices globally which also destroy US refining margins.
The India Oil subsidy/price control is disguised as need for cheap cooking oil, kerosene & diesel for its domestic agriculture, transportation & residential sectors and to offset inflation cost. But because India & China have expanded based on exporting gasoline & diesel to Western Developed Countries – it becomes strategic advantage for all fuels, production transportation & other export cost that puts free trade like US & EU at tremendous disadvantage …… especially when coupled with the stupid lack of environmental requirement (due Kyoto largesse) for either production or expansion of refinery plants.
Obama made pointed rhetoric about India & China should not expect their Growth to come on the back of US imports and hopefully the Bill introduced in US House this year against China currency manipulation will gain traction before the whole industry and its jobs are lost to this unfair trade leverage.
This article claims that India did not subsidize refining sector earnings last year, but China has been doing it since 2005 …… claiming each year it was a one off situation that wouldn’t be ongoing. Its time for US refining to wake up and its time to start demanding some reaction from US lawmakers on actual Fair trade or Tariff provisions.
January 11, 2011 at 11:33 pm #5345
While I agree the subsidy seems staggering you need to take this in line with the indian economy which is still developing. I don’t think there was any import of any fuels to US from India. You are trying to link 2 unrelated scenarios.
January 11, 2011 at 11:39 pm #5344
Lack of Koyto membership does not imply that enviornmental considerations are not in place for those designing new refineries or making modifications to existing refineries in developing countries.
January 12, 2011 at 12:06 am #5343
The only reason there wasn’t any exports of fuels from India to US was because the market was balanced and demand was down due to global economy. The entire justification for Reliance doubled capacity was to be an export market – when the economy prevented it India hastily refocused production into domestic markets (temporarily).
The two are completely related – you have government subsidized refineries getting to dump product into higher valued markets like the US by Refineries that arent really following WTO free market rules but trying to enjoy spread for higher cost it takes to abide by them.
Do not play that stupid “developing country” economy card – that only works with liberals who are more concerned with wealth redistribution than fair free market principals. If any contry is “developing” and hasnt risen to level to abide by WTO regulations (free currency, environmental regulation, private ownership, ect) then it should be focused at domestic markets not exports.
January 12, 2011 at 12:16 am #5342
I agree with you that lack of Koyto membership does not always imply environmental considerations are not in place for those designing new refineries – the US is prime example of this, while we did not sign onto Koyto the US plants met higher most of thier goals under Clear Skies program while all 18 signature Koyto countries failed to meet thiers.
However extending this to countries like India and China who benefited by the “Developing Country” label that exempted them is a farce. They may have them on paper and make best efforts for publicity reasons but cost drivers move projects to lowest resitance level.
The proof is that China is now the #1 polluter and India is now the #3 polluter (just behind the US and in front of Russia). Before Kyoto these countries were #5 & #7 respectively – so its doubtful they have actually “made” a lot of environmental modifications they “considered”.
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