OIL FIRMS FACE FURTHER PAIN AS GOVT MAY SEEK MORE PRICE CUTS

MUMBAI: The worst may not be over for India’s state-run oi refiners. The request by the cen tral government on Thursday that they absorb a portion of sweeping fuel price cuts is rais ing speculation by analysts at Goldman Sachs Group Inc., Citi group Inc. and Jefferies Group Llc that price controls may be reintroduced or further reduc tions will be demanded.

The move comes amid public anger over rising pump prices and in the run up to elections in some key provinces later this year and a national ballot in 2019 when Prime Minister Narendra Modi is set to seek re-election Fuel prices in India before Thursday’s announcement had hit record highs amid rising oi and a sharp depreciation of the rupee.

The imposition of price con trols is an “unequivocal nega tive” that underscores “high political risk” associated with state-owned enterprises, Citi group’s Saurabh Handa wrote in a note, while Goldman called it a “step back towards regulatory regime”.

The request that the compa nies absorb 1 rupee per liter for petrol and diesel may lower the combined pretax profit of Bharat Petroleum Corp., Hindustan Petroleum Corp. and Indian Oi Corp. by about ₹4,500 for the remaining two quarters of the year through March, according to people with knowledge of the development.

“Earnings will remain at risk as further increases in the sub sidy burden can’t be ruled out given rising oil prices, a depreci ating rupee and next year’s gen eral elections,” Kunal Agrawal a Bloomberg Intelligence, ana lyst said in a note.

While the measures, which also include a cut in excise duties, cooled pump prices, ana lysts worry the coming elections may pressure the government to do more. Retail prices of petrol and diesel in India are still ₹3 to 4 a liter lower than they should be given global spot prices and the rupee-dollar exchange rate, Jef feries analysts led by Som shankar Sinha said in a report.