The Hindu Business Line : ONGC chief blames Govt policy for oil sector woes

INDIAN oil companies are facing financial crunch because the Government is not allowing them to increase prices of petroleum products at a time when prices of crude and all the other inputs such as steel and cement are rising.

"Whether you have an oil pool account or some other mechanism to subsidise the prices, at the end of the day somebody will have to pay for it," Mr Subir Raha, Chairman and Managing Director, ONGC said here today. He was speaking at the Indian Merchants' Chamber on "Current Oil Situation: Indian strategy".

Mr Raha said oil companies are headed towards bankruptcy as they are being forced to fund increased subsidy on products such as liquefied petroleum gas (LPG) and kerosene.

Recently, Indian Oil Corporation, the country's largest public sector refining and marketing company was forced to increase its borrowing limit, having already exhausted it.

Such a situation might adversely affect the debt-equity ratios of oil companies, he said. Although oil companies enjoy sovereign guarantee, they cannot open letters of credit with no money in their bank account, he added.

Mr Raha said he did not see a single likely event that will cool global crude oil prices. India imports 70 per cent of its crude oil requirements and crude prices have jumped from $21 a barrel last year to more than $50 a barrel this week.

He said high price pressures are unlikely to ease as the US, the largest consumer of petroleum products, is yet to stock its winter requirements. Also, the terrorism threat continues to loom large over the world. With tensions looming over oil producing countries, oil sector professionals have left West Asia for safer destinations.

Back home, Indian oil companies are caught in a slick as they cannot influence global prices as the customers are unlikely to pay the real cost. The Indian industry and the consumers "still have not faced the reality of international prices".