Standalone Refineries Like Mangalore Refinery and Petrochemicals Limited and Chennai Petroleum Corporation Limited May Face Margin Pressure

Oil marketing companies (OMCs) in the public sector plan to pay refineries lower prices for petrol and diesel than the import price in order to compensate for the losses arising from the failure to raise fuel prices. This would affect single refineries such as Mangalore Refinery and Petrochemicals Ltd., Chennai Petroleum Corp., and Hindustan Mangalore and Mumbai Refinery (HML). Crude oil prices were around $70 per barrel before the crisis in West Asia and have gone up to more than $100. But the prices of petrol and diesel have been stagnant in the country. Hence, the OMCs have to bear the losses.

The OMCs in the public sector are considering freezing or subsidizing the Refinery Transportation Charge (RTP), which is the price at which refineries supply fuel to their marketing companies. This move aims to ensure refineries pay less than the import-parity cost of petrol and diesel.

If global oil prices remain high, this proposed move will prevent refineries from passing on the entire burden of increased crude oil costs through RTP, and they will have to bear a portion of this impact themselves.

Integrated companies such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) can offset this loss between their refining and marketing operations.

On the other hand, standalone refineries like Mangalore Refinery and Petrochemicals Limited (MRPL), Chennai Petroleum Corporation Limited (CPCL), and HPCL-Mittal Energy Limited (HMEL) have little presence in the retail market and sell most of their production to these three OMCs. Therefore, their margins will be most impacted.

Sources also said that if the moratorium or exemption on RTP is extended to private refineries, refineries like Nayara Energy and Reliance Industries Limited, both of which sell a significant portion of their production to OMCs, will also be affected.