The Hindu Business Line : IOC losing Rs 100 cr a day

On a sticky wicket As part of their representations before the Centre, oil marketing companies have recommended freezing of duties once crude prices hit $60-65 a barrel.

Kolkata , April 22

The latest spike in global oil prices is beginning to take its toll. Indian Oil is losing Rs 100 crore a day in under-recoveries on petrol and diesel.

Crude oil closed at a record $75.17 a barrel during the weekend on market worries over Iran's nuclear stand-off with the West.

Under-recoveries are projected at Rs 1,400 crore in the second fortnight of April. This follows an under-recovery of Rs 1,000 crore in the first fortnight, making it Rs 2,400 crore in all for the first month of fiscal 2006-07 for Indian Oil.

Under-recovery happens when the selling price of the fuel is lower than the cost price, which includes various duties and levies.

Consequently, Indian Oil has been forced to raise over Rs 1,500 crore short-term borrowing in April. The situation has worsened in the third week when India basket crude crossed $70 a barrel. "We are expecting the Government to come out with a transparent mechanism to help oil companies to survive the crude price volatility by the middle of May," a senior IOC official said. As part of their representations before the Centre, oil marketing companies have recommended freezing of duties once crude prices hit $60-65 a barrel.

Underlining the impact of crude and retail price mismatch on the working capital, sources said that from Rs 17,000 crore in 2004-05, IOC's borrowings had shot up to Rs 25,000 crore as on March 31, 2006 and would stand at about Rs 27,000 crore in April 2006.

Though the debt-equity ratio is still ruling at a manageable 0.8 per cent, the share of short-term borrowings has gone up substantially in last two years and is now about 45 per cent of the total.

The cost of borrowings has also gone up substantially. The short-term borrowings are now costlier by two percentage points at 7 to 8 per cent compared to last year. The overall interest cost (of both short and long-term funds) has gone up by at least one percentage point to 6.5 to 7 per cent.

A part of the rising interest burden is offset by the interest bearing (7.3 to 7.6 per cent) oil bonds received by the company. IOC received a total of Rs 6,500 crore oil bonds of which bonds worth Rs 730 crore were sold this month.

No impact on projects

The sources, however, denied any impact of the ongoing crisis on the projects already undertaken by the company (including the recently approved Paradip refinery-cum-petrochemicals) as funds were firmed up on long-term basis.

To offload ONGC stake for Rs 3,500 cr

IOC is planning to raise over Rs 3,500 crore by off-loading the first tranche of its 9.6 per cent equity holding in ONGC shortly. "One positive impact of the crude price rise is increase in the value of our investment in ONGC. As the scrip has gone past Rs 1,350, we will off-load 20 per cent of our total stake in the company any time during the next few weeks," a senior IOC official said.

Though it had taken the board approval last fiscal, the company was waiting for the ONGC scrip to cross the Rs 1,250-mark. "The delay (in stake sell) has enhanced our expected returns by at least Rs 500 crore," the official added.

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