The Hindu Business Line : IOC to take a hit as crude prices soar

The subsidy on LPG and kerosene alone (which the Government has made oil companies to bear) will burn a hole of around Rs 3,000 crore into IOC's profits. On top of that is the loss on account of the upward adjustment in petrol prices - about Re 1 per litre - which IOC could not make.

Incidentally, other oil companies too have to bear the brunt of the subsidy. For example, ONGC has said that the subsidy bill could cost it Rs 2,000 crore. BPCL and HPCL could end up losing around Rs 600 crore each. These companies have to sell LPG and diesel at prices fixed by the government, and so these companies, and their shareholders, have to pick up the subsidy tab, rather than pass it on to the country's exchequer.

International crude prices have reached one-year highs of around $37 (Rs 1,665) a barrel.

After the elections are over and if the crude prices continue to be high, IOC might raise prices of petro products. However, the company also has just begun to do what is known as `margin hedging', to protect its margins.

Under this, IOC will enter into crude purchase contracts where the crude prices will not be the international prices, but the price that will give the refiner a fixed, pre-agreed margin. If the crude prices fall, IOC does not get any benefit, but if the prices increase, the company's margins are not squeezed.

"We have just started doing this, and the process is gathering momentum," said IOC's Chairman and Managing Director, Mr M.S. Ramachandran, adding that the company had contracted around 3,00,000 barrels of crude under this method.

Meanwhile, IOC has started to convert naphtha into petrol and motor oil, as the demand for naphtha had come down sharply. After IPCL was taken over by Reliance, IOC's sale of naphtha to IPCL stopped.

Also, the demand from fertiliser units dried up. As a result, IOC's sales volumes declined by about half a per cent in the first nine months of the current year.

Mr Ramachandran said that Bangladesh Petroleum Corporation had recently entered into a term contract with IOC to buy 2,00,000 tonnes of diesel and 20,000 tonnes of aviation turbine fuel.

He told Business Line that IOC would save Rs 400 crore annually once the Paradip-Haldia pipeline comes into being. The pipeline would enable IOC to bring crude in large ships (ultra large crude carriers, that can hold 3.2 lakh tonnes of crude) into Paradip port. Otherwise, since the Haldia port is not deep, only smaller vessels can bring in crude oil to the port to feed the Haldia refinery.

Iranian co not keen to swap plan

NATIONAL Iranian Oil Company has said it is not interested in the proposal to exchange its holding in Chennai Petroleum Corporation for a stake in CPCL's parent company, Indian Oil Corporation.

The IOC Chairman and Managing Director, Mr M.S. Ramachandran, told Business Line that NIOC had said that it was not interested in investing in a company where it would not have a say in the management.

With a 14.29 per cent stake in CPCL, the Iranian company has two representatives on the CPCL board.