LPG Cap Hike a Populist Move, Credit Negative for Oil Cos: Icra - The New Indian Express

LPG Cap Hike a Populist Move, Credit Negative for Oil Cos: Icra

Published: 01st February 2014 06:00 AM

Last Updated: 01st February 2014 01:36 AM

The government’s decision to raise the number of subsidised LPG cylinders to 12 per household a year from a quota of 9 is a populist move that would be credit negative for public sector oil companies, rating agency Icra said on Friday.

The hike in quota is expected to increase the subsidy burden by Rs 5,000 crore on an annual basis and adversely impact retailers Indian Oil, Hindustan Petroleum and Bharat Petroleum, Icra said.

Besides increasing the overall subsidy burden, the move could “result in diversion of subsidised LPG to the commercial sector and shift the burden of LPG subsidy on the oil marketing companies (OMCs),” it said.

As per the Ministry of Petroleum and Natural Gas, while 89.2 per cent of the 15 crore LPG consumers use 9 cylinders in a year, if the quota is raised to 12 about 97 per cent of the consumers would be fully covered by subsidised cylinders.

Senior Vice-President and Co-Head, Corporate Ratings, Icra, K Ravichandran said: “The gross under recoveries (revenue losses) of the OMCs were Rs 100,632 crore during the first nine months of 2013-14, while the same are expected to be around Rs 140,000 crore for the full year 2013-14.”

“The increase in under recoveries of OMCs coupled with the delays in compensation by Government is likely to strain the already stressed financial position of the OMCs leading to higher requirements of short term debt and higher interest expenses (which are not compensated by the government).”

“With the increase in the cap, a part of the additional number of subsidised cylinders available to the household may get diverted to the commercial sector,” Icra said.

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