The Hindu Business Line : IOC pins hopes on strong rupee

Kolkata April 6 Being faced with a volatile undertone in crude and product prices leading to rise in under-recoveries, IOC (and other marketing companies) is pinning hopes on a strong rupee to ease pressure on working capital.

Though he prefers to consider the present slide of dollar as a "temporary phenomenon", Mr S.V. Narasimhan, Director (Finance) of IOC, says that a stronger rupee partially sets aside the impact of upward trends in crude prices.

"If rupee gains by 100 paise against dollar, our cost of crude comes down by 2 per cent," he said. Naturally the working capital — which is under strain in the face of Rs 65 crore under-recovery a day by the company — gets some relief.

A strong rupee may also help the company to save on foreign currency loan repayment. However, that seems to be too distant a possibility.

According to sources, IOC has roughly $2.5 billion foreign currency loan and may gain by over Rs 200 crore in case of every 100 paise gain by rupee.

Meanwhile, firming up of crude and product prices had led to rise in under-recoveries in petrol, diesel and kerosene. As on April 1, IOC recorded under-recoveries of Rs 4 a litre on petrol, Rs 3.20 a litre on diesel and Rs 13.50 on kerosene primarily due to volatility in international product prices.

In the international market, Petrol has become costlier by $10 a barrel in April. Diesel is dearer by $3-4 and kerosene by $2-3.

The only exception is LPG, which is now ruling at $507 down from $540. Accordingly, the subsidy per cylinder has come down from as high as Rs 180 to Rs 161.

"We are hopeful that the first quarter of 2007-08 will not prove as bad as it was during the last year. However, product prices generally remain firm during this period due to several reasons, including the scheduled maintenance shutdown of Asian refineries," Mr Narasimhan said.

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