July 29 (Bloomberg) -- Indian Oil Corp. reported a first- ever quarterly loss after the government forced it to sell fuels below cost to cushion consumers from record global oil prices, and said the losses may extend into the second quarter.

India's largest refiner posted a net loss of 542 million rupees ($12 million) in the three months ended June 30, compared with a 14.72 billion rupee profit a year earlier. The median forecast of six analyst surveyed by Bloomberg News was a net loss of 1.85 billion rupees.

India has restricted state-run refiners to a 20 percent increase in gasoline prices since June 2004, while the cost of crude oil has risen 51 percent. The policy, which has caused Indian Oil shares to slump 22 percent this year, may prevent a recovery in earnings as oil prices hover near $60 a barrel.

``The government has to come out with a policy on fuel prices to address this issue of rising crude oil prices,'' said Dhimant Shah, fund manager at ASK Raymond James that manages $200 million in stock in Mumbai. ``Otherwise, refiners will continue to report poor numbers. If you look at Indian Oil's consolidated numbers, along with its subsidiaries, the picture is even more gloomy.''

IBP Ltd., the fuel retailing unit of India's biggest state- owned oil refiner, said its losses widened in the first-quarter to 2.34 billion rupees in the three months ended June compared with a loss of 86.5 million rupees a year ago, the company said in a statement to the Mumbai stock exchange.

Shares Fell

Indian Oil's sales rose 22 percent to 386.24 billion rupees in the quarter. Its other income rose to 2.11 billion rupees from 1.3 billion rupees a year ago.

Indian Oil shares fell 2.4 rupees, or 0.6 percent, to 401.1 rupees on the Mumbai stock exchange at the 3:30 p.m. close.

The nation's largest refiner lost 31.58 billion rupees in revenue in the quarter by selling auto and cooking fuels below the cost of production. Of the total, the company lost 18.32 billion rupees on liquefied petroleum gas, used as cooking fuel, and kerosene sales. Rest of the revenue losses were from selling diesel and gasoline below production costs.

The price cap is leading to revenue losses of 18 billion rupees a month at current oil prices and this may force the company to go slow on its investment plans,' Chairman Sarthak Behuria told reporters in New Delhi.

``We have very aggressive merger and acquisition plans for overseas,'' Behuria said. ``But if under-recoveries continue, where will income come from.''

Second-Quarter Loss Likely

Indian Oil may report a loss in the second quarter too if the government retains the price caps as crude oil prices remain high, S.V. Narasimhan, director of finance, said.

Crude oil rose today to its highest in more than two weeks, surpassing $60 a barrel in New York, after an explosion at BP Plc's Texas City, Texas, refinery heightened concern processing plants may struggle to meet rising fuel demand.

``Crude prices are unlikely to relent from these levels, that is my reading,'' Behuria said. ``Because the winter months are coming and demand for heating fuels is going to grow.''

Successive governments have failed to stop fuel subsidies that have been in place continuously since the 1970s, when oil shortages caused prices to surge. Indian governments have also kept fuel cheap to win political support for economic liberalization that introduced more competition, angering workers in industries that were protected for decades.

Opposition

Prime Minister Manmohan Singh, 73, an Oxford-educated economist who has headed the nation's central bank and started India's economic reforms in 1991 when he was finance minister, faces opposition to further opening up of the economy from communist parties that are part of his coalition government.

``We'll work to evolve a viable consensus,'' Singh said in an interview in Washington D.C. on July 21. ``There are elements of our coalition that have strong views.'' The communists have argued that raising fuel prices will hurt the poor who comprise more than a third of India's people. Of a population of 1.07 billion, about 350 million live on less than $1 a day, according to the World Bank.

The government has softened the burden on refiners by asking the state-run explorer, Oil & Natural Gas Corp., and natural gas distributor, GAIL (India) Ltd., to share the cost of subsidies. The burden may be spread wider this fiscal year by asking private oil companies such as Reliance Industries Ltd. to pay a share, S.C. Tripathi, secretary in the oil ministry, said on July 6.

The revenue losses at refiners widened over the past year when New York crude oil prices rose to a record $62.10 a barrel on July 7, the highest since the contract began trading in 1983.

Profits Fell

Indian Oil's profits have fallen in four out of the past five quarters due to the price freeze. In the quarter ended March 31, Indian Oil's net income slumped 52 percent while its state-run rival Hindustan Petroleum Corp. reported a 5 percent fall and Bharat Petroleum Corp. a 15 percent.

Shares of Hindustan Petroleum have fallen 26 percent this year while Bharat Petroleum's shares have dropped 22 percent. India's 30-share key Sensitive Index, or Sensex, has risen 17 percent during the same period.

Indian refiners were allowed to raise prices of gasoline and diesel on June 20. The previous increase in auto fuel prices prior to June was in November. The price of liquefied petroleum gas, a cooking fuel, was last raised on June 15, 2004, while kerosene prices haven't changed since April 2002.

The freeze led to refiners losing as much as 203 billion rupees in revenue in the year ended March 31. In the three months ended June, refiners may lose 95 billion rupees of revenue, Tripathi told reporters on July 6.

Energy prices in India account for 14 percent of the wholesale price index. An increase of $1 a barrel in the oil price pushes up inflation by 0.3 percentage point, according to the Reserve Bank of India. Inflation reached a four-month high of 5.96 percent on April 23, the highest this year.

To contact the reporter on this story: Manash Goswami in New Delhi at mgoswami@bloomberg.net.

Last Updated: July 29, 2005 09:31 EDT