Profitability of state-owned refiners such as Indian Oil Corp (IOC) may come under pressure if the government asks them to temporarily freeze the prices of petrol, diesel and other fuels ahead of general elections, Moody's Investors Service said Tuesday.

Before the Gujarat and Karnataka state elections, the government had asked oil companies to temporarily suspend the practice of adjusting the prices of petrol and diesel on a daily basis.

“Given India's upcoming general election in April-May, we expect the refiners' profitability may come under pressure if they are asked by the government to temporarily freeze the prices of petroleum products,” Moody's said in a report.

The BJP-led NDA, if voted back to power, could allow oil companies to recover their losses post elections as it has done in previous state-level elections, it said.

“A change in government may expose the oil companies to a new set of challenges that are harder to anticipate because the oil and gas sector policy of other parties contesting in the elections is not yet clear.”

State-owned IOC, Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) had temporarily stopped revising fuel prices first in December 2017, ahead of assembly elections in Gujarat and then in April/May 2018 before Karnataka elections. So far, they have continued to change prices on a daily basis.

India goes to polls in seven phases beginning April 11.

Moody’s expects India’s state-owned oil companies will continue to pay high dividends in the next fiscal year, which will be negative for refiners but the oil producers will not be as significantly affected.

In a report on the country’s state-owned oil and gas companies, Moody’s said: “High shareholder returns will increase the oil companies’ aggregate borrowings and constrain their credit profiles.” It expected Oil and Natural Gas Corp (ONGC), IOC, Oil India Ltd (OIL) and BPCL to maintain high dividends payments as well as conduct share buybacks in fiscal 2020.