Indian Oil plunged into loss by low-cost fuels

New Dehli: Indian Oil Corporation, the nation's biggest state-owned refiner, reported an unexpected first-quarter loss after the government failed to compensate the company for selling fuels below cost.

The company had a loss of Rs33.9 billion (Dh2.6 billion) in the three months ended June 30, compared with a profit of Rs36.8 billion a year earlier, New Delhi-based Indian Oil said in a statement to the Bombay Stock Exchange.

The average estimate of 11 analysts surveyed by Bloomberg was a profit of Rs3.7 billion. Net sales increased 23 per cent to Rs712.8 billion.

India asks state-run refiners to sell diesel and cooking fuels below cost to curb inflation in the world's third-fastest growing major economy. Prime Minister Manmohan Singh's decision in June to free gasoline prices from state control and increase prices of diesel, cooking gas and kerosene may help improve their profitability.

"State-refiners are very dependent on government support," Saeed Jaffery, a Mumbai-based analyst at Ambit Capital Pvt., said before the announcement. "The government's lack of clarity in compensating refiners will continue to hurt them."

Indian Oil shares have climbed 22 per cent this year, compared with the 4 per cent increase in the benchmark Sensitive Index. The shares fell 0.4 per cent to Rs373.25 on Friday.

Crude oil averaged $81.48 a barrel in the quarter ended June 30, 17 per cent higher than a year ago. Crude for September delivery closed at $78.98 a barrel, down 32 cents, in New York Mercantile Exchange on Friday.

Refining margin

Indian Oil's average gross refining margin for the quarter was $3 per barrel, compared with $7.36 a year earlier, the company said today.

A panel led by Finance Minister Pranab Mukherjee said on June 25 state refiners would be allowed to set gasoline prices, which were increased by Rs3.5 a litre. Prices of diesel, cooking gas and kerosene were raised and remain under government control.