A Bharat Petroleum retail fuel outlet in New Delhi. Photo: AFP / NurPhoto

India’s fuel retailers incurred huge losses after they kept gasoline and diesel prices unchanged for more than four months while elections were being held in five states.

Although fuel prices are market-determined, the oil marketing companies, most of them state-owned, impose a freeze ahead of elections.

According to Moody’s Investors Service, top fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited have collectively lost about 190 billion rupees (US$2.25 billion) in revenue between November and March as they retained prices.

Gasoline and diesel prices remained unchanged between November 4, 2021, and March 21, while crude oil averaged about $111 per barrel in the first three weeks of March compared with around $82 in early November. India meets nearly 85% of its fuel requirements through imports.

The rating agency estimated Indian Oil Corporation’s revenue loss to be about $1 billion to $1.1 billion, while the other two companies may have incurred a loss of about $550-$650 million each over the same period.

Moody’s said that according to current market prices, Indian oil marketing companies are now incurring revenue losses of about $25 per barrel and $24 per barrel on the sale of gasoline and diesel.

If crude prices continue to average $111 a barrel, and if the prices remain constant, the three oil companies will collectively incur losses of $65-70 million a day.

“A sharp rise in crude oil prices, combined with the refiners’ inability to increase retail selling prices of transportation fuels in India for over four months (between November 4, 2021, and March 21, 2022) due to recently concluded elections in five Indian states, will hurt the profitability of state-owned refining and marketing companies IOC, BPCL and HPCL,” it said.

Since March 21, the three companies have been increasing prices marginally on a frequent basis, in order to soften the blow to the consumer. However, this will force oil companies to continue to absorb a portion of elevated oil prices, which will hurt their profitability.

Moody’s hopes the government will allow the refiners to adjust prices appropriately and avoid a situation where they incur huge losses for a prolonged period.

The increase in oil prices is expected to increase transport costs, which will have a cascading effect on the prices of essential commodities. The cost price inflation has already crossed the Reserve Bank of India’s upper threshold limit of 6%.

In February, it reached 6.07% and in January it was 6.01%. More worrying, the wholesale price index was 13.11% year-on-year in February and has remained at the double-digit level for 11 consecutive months.