New Delhi, May 8:
With lower global crude oil prices affecting oil companies’ margins, the government needs to reduce the subsidy burden on state-run explorers ONGC and Oil India, ratings agency Fitch said on Friday.
“We expect the government to intervene to reduce this financial burden on the state-upstream companies in light of the significantly low oil prices, which should ease pressure on their operating cash generation,” it said.
“To date there has been no action or firm proposals of how to address this issue,” Fitch added.
It was another matter for state-run oil marketing companies, the report titled “Effect of low oil prices on emerging market corporates”, said.
“The deregulation of diesel prices together with low oil prices are positive for the state-owned downstream companies – Indian Oil, Bharat Petroleum and Hindustan Petroleum – and as such will materially reduce their working capital requirements and related debt,” it said.
The agency, however, said in view of the deregulation of petrol and diesel, Indian consumers will be more burdened if the cost of global crude oil increases over current levels.
“Given that both gasoline and diesel prices are now deregulated, consumers in India will face a higher burden should global prices increase from current low levels, than would have been the case under India’s previous regulated fuel pricing regime,” the report said.
“Despite the dramatic fall in global oil prices, retail gasoline and diesel prices in India have only fallen by only around 20 percent since August 2014, due to higher excise duty on fuel as well as changes in the INR/USD exchange rate,” it added.
The Indian basket of crude oil traded on Thursday at $65.81 a barrel at the exchange rate of Rs.63.88 per US dollar.