Credit rating agency Crisil has informed that the government's decision to deregulate the petrol prices and increasing the rates of cooking fuel and diesel will provide assistance to public sector oil companies in diminishing their gross under-recoveries by approximately Rs 25,000 crore during FY11.

Crisil also said that these measures of the government will have a positive impact on the financial risk profiles of oil marketing companies and in the long run will make way for economic pricing of cooking fuels.

It said, in spite of the presence of sizeable under-recoveries a regulated system is necessary for timely sharing of subsidy.

Prior to the price hike, the public sector oil companies anticipated to lose Rs 74,300 crore on the back of selling petrol, diesel, domestic LPG and kerosene below cost in FY2010-11.

Crisil said as a result of modification in prices, the public sector oil companies' (PSOC)

gross under-recoveries from the sale of petroleum products below the required price will be decreased by about Rs 25,000 crore in FY11.

Crisil further said that deregulation of prices will get rid of under-recoveries on petrol, decrease under-recoveries on diesel by about 50 per cent taking into consideration the present price increase and diminish under recoveries on liquefied petroleum gas (LPG) and superior kerosene oil (SKO) by about 15 per cent.

It also said, These measures should decrease Indian Oil Corporation's gross under-recoveries by approximately Rs 13,000 crore and that of Bharat Petroleum Corporation and Hindustan Petroleum Corporation by around Rs 6,500 crore and Rs 5,500 crore respectively.

Crisil Ratings Director Pawan Agrawal said that, Government of India's decision will result in enhancing the cash flow position of PSOCs and decrease their reliance on borrowings.

Agrawal further added inspite of these measures under-recoveries will continue to be high, so there is a need for formulating a regulated system to share the burden in an appropriate manner.

Crisil said either full deregulating or allowing the PSOCs to decide pricing, or a regulated system to compensate the PSOCs for under-recoveries in an appropriate manner, is needed to re-establish the financial health and credit quality of the oil marketing companies.