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Fitch flags fears from gasoline worth freeze for OMCs

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‘Extended State interference in auto fuels’ retail costs and losses for OMCs a damaging’

‘Extended State interference in auto fuels’ retail costs and losses for OMCs a damaging’

Oil advertising corporations’ (OMCs’) losses on account of frozen retail gasoline costs and the prospect of extended ‘State interference’ in pricing choices pose a damaging danger for his or her credit score profiles, Fitch Scores wrote in a notice on Wednesday. 

Worth-freezes for gasoline, gasoil and liquified petroleum gasoline (LPG) throughout latest intervals of elevated crude-oil costs have precipitated advertising losses for Indian oil advertising corporations that outweigh robust gross refining margins, which can be at a report excessive, Fitch stated. These losses would strain their profitability and credit score metrics.   

Freedom in retail gasoline pricing would additionally assist reboot the Centre’s plans to disinvest BPCL, the general public sector oil advertising main whose sale course of has been dropped after bidders misplaced curiosity, Fitch famous.    

“The OMCs have borne the most important share of the burden of surging crude oil costs in 2022, regardless of authorities tax cuts, with solely restricted worth rises being handed on to finish customers,” the company stated.   

Whereas Fitch expects ‘near-term costs’ to proceed to mirror the Centre’s efforts to steadiness the nation’s fiscal wants, inflationary pressures and OMCs’ monetary well being, over the long run, it emphasised the necessity for his or her advertising margins to stay aligned with crude oil worth actions. 

“The federal government has previously allowed OMCs to recoup losses from the short-term suspension of every day worth resets in subsequent intervals,” the score agency stated.   

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“A situation of extended State interference in auto-fuel retail costs and losses on the OMCs could be damaging for his or her standalone credit score profiles. This will result in a rethink of the federal government’s strategy to gasoline costs. We imagine freedom for OMCs to regulate retail gasoline costs would assist authorities makes an attempt to re-initiate the divestment of BPCL, ought to it select to take action,” it concluded. 

By- The Hindu

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