Govt's decision to reduce fuel prices credit negative for OMCs: Moody's

The government's decision last week to reduce fuel prices through a mix of state and centre tax cuts and price cuts taken by oil marketing companies (OMCs) may have far-flung impact on the domestic oil industry, according to a Moody's report. The immediate impact, according to the rating agency’s note would be a credit negative for the OMCs.

Moody's in its note raised concerns over increased borrowings for OMCs, rating downgrades, further directives to absorb fuel prices and pressure on upstream companies to increase in shareholder returns or subsidise crude oil prices.

On October 4, the government (Baa2 stable) reduced petrol and diesel retail selling prices by Rs 2.50 per litre, through cuts in excise duties by Rs 1.50 per litre and asking OMCs to absorb the remaining Re 1 per litre price cut.