The government has made 5% ethanol blending with petrol mandatory from November 1. S K Joshi, director of finance at BPCL, says that they will procure ethanol via the tender route.
He adds that Indian companies are well protected if the crude basket stays below $67 per barrel.
Joshi also states that the Indian basket has fallen below $64 per barrel in September and he expects to receive oil bonds shortly. He feels that if oil prices remain soft, the burden on oil bonds and upstream companies will reduce.
He further mentions that under-recoveries have come down by about $2-3 per barrel.
Excerpts from CNBC-TV18's exclusive interview with SK Joshi:
The cost of the Indian basket of crude as on Friday was $63.70 per barrel. Earlier in the month when we spoke to you, under-recoveries were Rs 4 per litre for petrol and Rs 9.50 per litre for diesel, but at $63.70 how much are under-recoveries now?
The product prices are still around $83. The under-recoveries largely depend on the product prices.
That has remained unchanged at the Rs 4 per litre?
It has come down by $2-3. It used to be $86.
Can you translate that for us per litre of petrol, or will it take a little while to get to that number?
Still the under-recoveries are high because if you recollect, the current prices were done when the Indian basket was around $67 per barrel. Now it has come off, so certainly the recoveries have come down by $2-3 to $4.
Have you collated then, what sort of impact you are going to have for your subsidy burden in this quarter, that is Q2?
As I said, one thing is that these subsidies are met through three to four means. One is that the government is picking up the burden with the oil bonds, which was Rs 28,000 crore. So if you look at April-June the average price of the Indian basket, which was about $67 per barrel, with those prices the total annual burden was appearing around Rs 73,000 crore.
Out of that, the bonds were about Rs 28,000 crore. The upstream companies were to pick up about Rs 24,000 crore.
The price rise, which was done in June-July, was about Rs 9,000 crore, the rest was a sharing by refineries, etc. So now if oil prices continue to slide and remain softer, the burden on oil bonds and upstream companies will come down proportionately. We will be allowed a reasonable margin on the products.
What is the plan in terms of your oil bonds, how soon do you plan to liquidate them?
For the current year, we have not yet received bonds; we expect to receive it shortly.
Government Ts (T Bonds) for the first six months are about Rs 14,000 crore, which will be distributed. But we have so far not received it in writing.
What's the outlook for oil prices at BPCL, fundamentally it looks like it has headed down but are you concerned about the politics involved internationally?
The current scenario reflects that the oil market has clearly turned bearish. If the subsidy burden relief is there, it augurs well for the marketing companies. I will give you a perspective for the current year.
If one looks at the first quarter, the Indian basket was around $59 per barrel, it went up from April to June to about $67 per barrel. For July-August the Indian basket was around $71 per barrel, now up to date, September, it is $65. But now it has fallen below $64.
So
What kind of levels would you be happy with, current levels or even a further drop?
If it remains below $67 per barrel, oil companies are well protected. I will put it that way.
What has been the impact on GRL, Goods Review List?
It is an average price. Currently, if you look at gasoil, which is diesel, it is running at around $17. Then the Jet-Kero is around $21-22 levels. So, they have also come off by $2-3.
After the Kochi merger, walk us through what sort of savings you expect to see, what sort of subsidies you have factored in for Kochi and whether or not you are going in for any capacity expansion for that refinery?
We are going ahead with capacity expansion at Kochi and making it Euro-III, Euro-IV complying. This will not affect the subsidy side because marketing is not done from Kochi.
However, consolidating the two balance sheets will help BPCL to handle the financing part of the capital expenditure expansion programme. So in that sense, it has more of a stabilising effect on BPCL.
Has the final word been said in terms of what happens to the oil bonds and the fact that they will not get any Statutory Liquidity Ratio, SLR, status or is that something that oil-marketing companies are still lobbying or hoping for?
We have not yet heard anything on the SLR front. If SLR status is given it will add to the liquidity. We can market the bonds and so in that way it helps. It is definitely positive if we get the SLR status for these bonds.
Does the current drop in kerosene warrant a cut in ATF, Aviation Turbine Fuel, prices? What's the outlook for ATF?
As I said, ATF also has softened around $21-22 levels. But if oil prices further soften, those also may slightly come down.
What do you expect to see in terms of broader macro changes because there were reports that the subsidy on kerosene and LPG might be reduced or it would be extended only to BPL, Below Poverty Line, families, ONGC has mooted a different price discounting scheme, do you expect to see any of these pointers taking any shape or even any of the recommendations of the Rangarajan Committee?
That's right, the government is making efforts because it is making it available for the BPL families. These are very positive steps in that direction. However, we will need to use technology to implement that scheme.
We understand that the government is trying to implement it on a pilot basis and if it succeeds, then the rollout will certainly help in curbing the misuse of subsidies. So certainly it's a positive. We have to wait and see how it gets implemented.
Give us one final word on the ethanol blending as well because we understand that it will now become mandatory, how soon will that process open you think and will it be open tenders?
We are going to procure ethanol through the tender route. That will put transparent market pricing on ethanol. We will be implementing that 5%, what the government has said.
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