The Hindu Business Line : `Oil industry will lose Rs 3,200 cr this quarter'

INDUSTRY leader in a sector that is undergoing a transition process, Indian Oil Corporation (IOC) is now gearing for the deregulated environment with optimisation packages, etc. Speaking to Business Line, IOC's Finance Director, Mr P. Sugavanam, talked about the financial impact of the future strategies.

How much loss will IOC incur due to non-revision of petro-product prices in the current quarter?

IOC will witness a loss in profits of around Rs 1,600 crore due to non-revision of prices of LPG, kerosene, petrol and diesel during the current quarter. The losses due to non-revision in prices of petrol and diesel will be around Rs 250 crore, with the rest being accounted for by LPG and kerosene. The industry as a whole will lose around Rs 3,200 crore during the quarter.

IOC is aggressively pursuing the petrochemicals business. What percentage will it contribute to IOC's bottomline in the short term?

We are building a Rs 7,000-crore, 8 lakh-tonne naphtha cracker in the petrochemicals business. The project location is currently in the process of finalisation. There is also the PX/PTA business being set up at the Panipat refinery. We expect this business to contribute around 15 per cent of IOC's turnover by around 2007.

What are attempts made to reduce the cost of capital and how much do you expect to gain during the current fiscal?

This year, we expect to save around Rs 300 crore by replacing expensive loans with cheaper loans. Reducing the cost of capital is an ongoing exercise and we are constantly in the pursuit of cheaper capital.

What are gains that IOC expects to realise through introduction of the process optimisation packages in its business?

In the current year, we expect to gain around Rs 200 crore due to implementation of the software packages. In the ensuing fiscal (2004-05), the gains will be as high as Rs 300-400 crore. We are spending 65-70 crore on the entire optimisation package and this will pay back in three months.

The software, developed by Tata Honeywell, consists of two parts — the refinery optimisation process and the supply-chain optimisation process.

The second part of the process, supply chain optimisation, involves integrating the refineries with the rest of the supply chain — the crude sourcing department to the corporate office to the product demand centres.

Has the hedging of risk by the IOC trading desk delivered results?

We have done three trades in February and four in March. In February, we gained $80,000 and another $140,000 in March.

IOC is currently in talks with Reliance to decide on the level of offtake of petro-products from the latter during fiscal 2004-05? What is the status on the negotiations?

The negotiations are progressing smoothly. It would not be fair to divulge the details of the negotiations. However, I can tell you with a fair degree of certainty that the negotiations are in the final stages. I am hopeful of an early conclusion of the negotiations.