After a period of record profits, state-owned fuel retailers Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) have experienced a significant drop in earnings for the June quarter. The decline is attributed to falling margins and under-recovery on the sale of domestic cooking gas LPG at government-controlled rates. IOC, the nation's largest oil firm, reported an 81% decrease in standalone net profit for April-June, the first quarter of the current 2024-25 fiscal year, with earnings of Rs 26.43 billion compared to Rs 137.50 billion a year ago. Net profit also declined sequentially from Rs 115.70 billion in the March quarter. HPCL posted a 90% drop in profit, earning Rs 6.33 crore compared to Rs 67.65 billion in April-June 2023 and Rs 27.09 billion in the preceding March quarter. BPCL's net profit fell to Rs 28.41 billion in April-June from Rs 106.44 billion a year earlier and Rs 47.89 billion in January-March. The three fuel retailers had previously made extraordinary gains by maintaining petrol and diesel prices despite a drop in costs, justifying the price freeze as a recovery measure for losses incurred the previous year. However, these gains were eroded by a Rs 2 per litre cut in petrol and diesel prices before general elections and a decrease in refining margins. Additionally, the companies faced uncompensated LPG subsidies, with IOC booking an under-recovery of Rs 51.56 billion, BPCL Rs 20.15 billion, and HPCL Rs 24.43 billion in April-June. An order from the oil ministry requires oil marketing companies (OMCs) to retain the difference in a buffer account when the market-determined price (MDP) of LPG cylinders is less than the effective cost to the customer (ECC). As of June 30, 2024, the three firms had a net negative buffer due to retail selling prices being less than MDP. The three retailers, IOC, BPCL, and HPCL, had reported record profits totalling about Rs 810 billion in FY24, significantly higher than their annual earnings of Rs 393.56 billion in pre-oil crisis years. This was because they resisted calls to revert to daily price revisions and pass on the softening rates to consumers, citing the need to recoup losses from the previous year. Finance Minister Nirmala Sitharaman had initially announced the equity infusion in February 2023 to support the companies' energy transition plans. However, after the record earnings of 2023-24, the equity infusion plan was dropped. While other state-owned oil companies like Oil and Natural Gas Corporation (ONGC) and GAIL (India) Ltd also have significant investment plans to achieve net-zero carbon emissions, the equity support was limited to the three fuel retailers due to their substantial losses from maintaining lower retail prices during the previous year's spike in crude oil prices. The boards of IOC and BPCL had previously approved rights issues to raise Rs 220 billion and Rs 180 billion, respectively, with government participation. The three companies control roughly 90% of India's fuel market and have 'voluntarily' refrained from changing petrol, diesel, and cooking gas (LPG) prices, resulting in losses during periods of higher input costs and profits when raw material prices were lower. They posted a combined net loss of Rs 212.01 billion during April-September 2022, despite accounting for Rs 220 billion in unpaid LPG subsidies from the previous two years. Subsequent softening of international prices and government-issued LPG subsidies helped IOC and BPCL post annual profits for 2022-23, although HPCL remained in the red. In FY24, the situation improved dramatically, with the three firms posting record earnings. (Source: ET)