The Hindu Business Line : `Iraq war cost oil PSUs Rs 600 crore'

THE Iraq war is now beginning to tell on the health of the domestic oil companies. The public sector oil companies have lost Rs 600 crore due to depreciation in the value of the higher inventory levels of petro-products maintained since late last year. Of this, Indian Oil Corporation (IOC) accounts for Rs 350 crore, according to Mr M.S. Ramachandran, Chairman and Managing Director, IOC. "The higher inventory of 0.7 million tonne was procured by IOC at a cost of Rs 1,000 crore and to that extent working capital was deployed," he said here today at a function organised by the Confederation of Indian Industry (CII).

The Petroleum Ministry had issued directions late last year to the public sector oil refiners to tank up their product inventory levels to ensure uninterrupted supply of petro-products in the event of war in Iraq. Crude procurement for this purpose was done at a time when global markets were firm and crude prices were in the $30 per barrel band. Over the last few months, crude and product prices have softened and hence IOC's inventory value has depreciated in the market place.

Mr Ramachandran said that in the last fiscal (2002-03), the healthy profits were largely due to gains on account of appreciation in the inventory value of petro-products due to rising international crude and product prices. In fact, the fiscal 2002-03 fourth quarter results, which are to be announced shortly will show healthy profits, he added.

He, however, issued a mild warning on the company's financial results during the current fiscal due to sliding crude prices resulting in depreciation in the value of inventory held by the oil companies. Typically, there is a two-month lag between the time of crude purchase and the retailing of products processed from that very crude. The oil companies are paid international market prices prevailing at the time of sale of products.

In his speech at the function, Mr Ramachandran lamented that enough was not being done at the government level to bag contracts in the reconstruction efforts in Iraq. An opinion that Mr V. Kelkar, advisor to Finance Minister, did not share.

"I am not sure if we have done enough to get the contracts. I feel we are late. Perhaps as a nation, we should strive harder," Mr Ramachandran said. IOC has been holding talks with L&T and Oil and Natural Gas Corporation (ONGC) to bag sub-contracts from the American firms like Bechtel, which have got contracts in Iraq. "We have already dashed off a fax to Bechtel informing them of our eagerness to participate in the reconstruction activity in Iraq," Mr Ramachandran said.

The IOC chief said that he was unable to see a time frame by which Indian refiners could access Iraqi crude from Basra. This crude is a favourite of Indian refiners owing to its low sulphur levels. "The Americans have said that it would take two to three months to restore the crude supply from the Basra fields. The other issue is that we don't know whom to deal with in Iraq in regard to purchase of crude," Mr Ramachandran said.

Another issue is the fate of contracts in Iraq. IOC is partnering STG, a Russian firm and a Jordanian firm to set up a pipeline from Iraq to Jordan. It will be designing and conducting the operations and maintenance of the firm.

"It is not clear if the contracts are in place," Mr Ramachandran said.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Core sector posts 5.2 pc growth

Depths of deprivation

Govt pens SARS prescription

SARS: `Joint steps needed from Asian countries'

`Brand building key to market share'

`Iraq war cost oil PSUs Rs 600 crore'

Decision soon on gas pricing policy: Naik

4 pc VAT rate: Will it mean cheaper drugs?

`Incentive' for States to join VAT regime

Garment units seek cut in duty