Increased under-recovery from selling domestic cooking gas at a rate below costs, a freeze on petrol and diesel prices for six months, and a windfall profit tax have hit the state-owned Indian Oil Corporation (IOC, which suffered a loss for the second quarter in a row.

The state-owned refiner reported a net loss of Rs 272.35 crore for the July-September quarter despite booking over Rs 10,800 crore in LPG subsidy it received from the government after the quarter ended.

The net loss of Rs 272.35 crore compares with a profit of Rs 6,360.05 crore in July-September 2021, according to a company’s filing with the stock exchanges.

Back-to-back loss

The second-quarter loss comes on the back of a Rs 1,992.53 crore loss incurred in the April-June quarter of this fiscal.

This is the first time that IOC has booked losses in two straight quarters — all because it sold petrol, diesel and cooking gas (LPG) at rates below cost.

IOC, as well as other state-owned fuel retailers, had booked heavy losses in the first quarter of the current fiscal and did not revise petrol, diesel and cooking gas LPG prices in line with costs incurred to help the government contain runaway inflation.

The three firms, which are supposed to revise petrol and diesel prices daily in line with costs, haven’t changed rates for over six-and-half-months now — the longest freeze in rates since fuel pricing was deregulated.

Sales up, exports down

IOC sold more petroleum products domestically in the second quarter (21.56 million tonnes versus 18.93 million tonnes last year) and refined more crude oil (16.09 million tonnes as opposed to 15.27 million tonnes in the second quarter of FY22).

However, exports were down to 0.86 million tonnes in July-September from 1.24 million tonnes in the same period last year. This is possibly because the government slapped a windfall profit tax on the export of petrol, diesel and ATF beginning July 1.

For the first half of the current fiscal, the company has accumulated a Rs 2,264.88 crore net loss against a profit of Rs 12,301.42 crore in the year-ago period.

Record refining margin

IOC clocked a record refining margin of $25.49 per barrel during April-September compared with $6.57 a barrel in the same period last year.

“The core gross refining margin (GRM) or the current price GRM for April-September after offsetting inventory loss/gain comes to $22.19 per barrel. However, the suppressed marketing margins of certain petroleum products have offset the benefit of an increase in GRM,” IOC said.

Subsidy support

The government on October 12 extended a one-time grant of Rs 22,000 crore to three state-owned fuel retailers to cover the losses they incurred on selling domestic cooking gas LPG below cost in the two years starting June 2020.

The subsidy was provided by the government after the quarter had ended but it was for the period up to September 2022 and so it was considered following the principle of ‘accrual-based’ accounting.

“The company had suffered under-recoveries from the sale of domestic LPG in the financial year 2021-22 and in six months ended September 2022.

“To compensate for under-recoveries, the government of India has recently approved a one-time grant of Rs 10,801.00 crore. This grant has been recorded under revenue from operations in financial results for the April-September 2022,” IOC said in the filing.

Revenue from operations soared to Rs 2.28 lakh crore in July-September from Rs 1.69 lakh crore a year back, the filing showed.

The government on Oct 15 hiked windfall tax on domestically produced crude oil by more than a third while doubling the rate on export of diesel.