The Hindu Business Line : IOC likely to be hit by pricing pressures

INDIAN Oil Corporation's refinery margins continued to remain under pressure in third quarter due to under recoveries from kerosene and liquefied petroleum gas (LPG) and are likely to impact earnings this fiscal.

Speaking to presspersons here on Thursday, the IOC Chairman, Mr Sarthak Behuria, said, "The outlook for pure operations is going to be bleak this fiscal." In fact, he added that this quarter IOC was likely to face losses on account of pricing pressures.

Already, during the first two months of the third quarter IOC had incurred losses, he said, due to pricing pressures.

For the first six months of the current fiscal IOC's net was down to Rs 895 crore from Rs 2,712 crore during the corresponding period of the previous year.

However, Mr Behuria said, that IOC hoped to offset the possible losses during the third quarter with bonds from the Government. These bonds to be issued by the Government were to offset the cost of subsidies. Approximately Rs 11,000 crore of bonds were expected to be issued to the oil companies, of which, IOC alone was likely to have a share of about Rs 6,000 crore.

Mr Behuria said refinery margins (the difference in value between the products produced by a refinery and the value of the crude oil) this quarter was down to $4 from $6 during the last quarter. He said the subsidies under recoveries in the case of kerosene and LPG were Rs 10,000 crore. In the case of kerosene, it was Rs 10 per litre and LPG it was about Rs 200 per cylinder.

The under recoveries in products were despite the fall in international oil prices. This was also because of some high cost imports made by IOC. "We have some high cost inventories," he said

International oil prices were now down to $55 per barrel. This would effectively translate into an average import price of under $52 per barrel. Product prices were also down. Kerosene was $60 per barrel and diesel was down to $56. Yet despite this fall, he said, product margins were below normal. In case of diesel, against a normal margin of Rs 1,300 per kilo litre (kl) it was Rs 700 kl. In case of petrol, however, the margins were normal at Rs 600, he said.

Faced with the low recoveries, Mr Behuria said that IOC had resorted to borrowings to the extent of Rs 24,000 crore for meeting its capital expenditure requirements. This was for meeting the cost of expanding its refinery in Panipat, Koyali and Haldia.

IOC also hoped to divest a portion of its cross holdings in other oil companies valued at Rs 14,000 crore once the Union Cabinet finalised its policies. "How much we divest will depend on our requirements," he added.

Mr Behuria who also met the family members of Mr S. Manjunath, IOC sales officer who was murdered, said, "the entire episode should be an eye opener," for the policy of subsidies in kerosene and LPG. The high subsidies were the root cause of adulteration in fuels, he added.

He said that the petroleum secretary had called for meeting of chief secretaries of all States next week for ascertaining steps to curb adulteration and improving the security for IOC officials.

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