FACTBOX-Impact of govt policy on Indian energy firms

June 9 (BestGrowthStock) – India’s government has said it would
again seek to reach agreement on a controversial increase in
fuel prices to help improve its fiscal position, despite
opposition to subsidy cuts from coalition allies.

Oil Minister Murli Deora said on Tuesday that lifting fuel
price controls would not hurt ordinary people, and would help
state-run oil firms that have been losing revenue from
government-set lower prices.

In a sign of how market-linked pricing could help,
private-sector refiner Essar Oil (ESRO.BO: ) said on Tuesday it
would speed up planned expansion of its retail network if the
government decides to deregulate fuel prices. [ID:nSGE6570A5]

The following are companies that are affected by India’s
fuel-price regulation.

STATE-RUN ENERGY FIRMS

* The government’s price-setting policy affects profits of
state-run oil marketing companies that are forced to sell fuel
at below-market rates. The government partially compensates
state-run retailers for selling fuel at cheaper rates.

They include:

Indian Oil (IOC.BO: )

Bharat Petroleum (BPCL.BO: )

Hindustan Petroleum (HPCL.BO: )

* State exploration firms are required to sell crude at a
hefty discount to ease the pain of fuel retailers, affecting
their profits, but the costs of these policies weigh on the
budget.

They include:

Oil and Gas Natural Corp (ONGC.BO: )

Oil India (OILI.BO: )

* A lack of clarity about the mechanism under which
subsidies are given to state energy companies makes it
difficult for analysts to value these firms, and earnings
estimates from brokerages are often disparate. Foreign and
domestic funds are also wary of investing in these firms due to
the uncertainty surrounding their earnings and revenue.

* Traders say full deregulation of fuel prices could boost
shares in state-run retailers by about 35-40 percent over a
year, and those of upstream firms by about 10 percent in the
period.

PRIVATE-SECTOR FUEL RETAILERS

* Any move to ease the government cap on fuel prices would
encourage private-sector players in the energy sector, which
now mainly export fuel, to consider domestic retail sales. No
compensation mechanism is available for private firms.

These include:

Reliance Industries (RELI.BO: )

Essar Oil (ESRO.BO: )

* Essar Oil and Reliance Industries had together captured
about 17 percent of the domestic retail market for diesel and
accounted for 10 percent of gasoline sales by 2005 before
heavily subsidised sales by state-run firms knocked them out of
the arena.

* Traders say there may not be an instant significant
impact on shares of these firms due to a change in government
regulation as they are involved in several other businesses
that are unaffected by policy changes.

Stock Today

(Reporting by Pratish Narayanan, editing by Andrew Marshall)

FACTBOX-Impact of govt policy on Indian energy firms