IOC borrows to meet working capital needs

Saddled with one of the largest debts for an Indian company, Indian Oil Corporation has accumulated dues of more than Rs 98,000 crore. The company is likely to lose Rs 21,000-22,000 crore in revenue during the quarter ending December 31, 2012.

Sale of subsidised diesel and cooking fuels has put the company under pressure, forcing it to borrow to meet its working capital requirement. The company would be incurring an additional Rs 3,000 crore financing cost during the current financial year, R S Butola, chairman and managing director, informed.

Indian Oil’s borrowing stood at Rs 75,000 crore at the end of 2011- 12. Till 2010- 11, the interest cost was Rs 2,670 crore, but it rose to Rs 5,600 crore in 2011-12. “Even if the government sanctions money this year to offset losses and releases it next year, we will not get compensation for the finance cost. We expect it to be more than Rs 8,000 crore this year. So, in two years, the impact of borrowings has risen by Rs 6,000 crore. Refineries do not have that kind of profit margin,” said Butola.

Delayed compensation and rising working capital requirement force oil marketing companies to resort to borrowings. This year has been particularly bad. Hindustan Petroleum, too, has seen its borrowings rise to Rs 39,000 crore. “Delayed subsidy release is the main reason behind mounting debt,” said B Mukherjee, director (finance) HPCL. He said the diesel price rise in September helped only marginally, and the benefits of capping subsidised LPG cylinders were yet to kick in, since most of the current sale was within the six- cylinder cap.

Indian Oil incurred losses of Rs 12,840 crore in the first six months, the highest ever by any company. The company incurred under- recoveries of Rs 45,914 crore, of which Rs 16,100- crore subsidy has been sanctioned, and a discount of Rs 16,200 crore was given by upstream oil and gas producing companies, leaving Indian Oil with an unmet under- recovery of Rs 13,600 crore.

Together with Hindustan Petroleum Corporation and Bharat Petroleum, the industry revenue loss, known as under- recovery was Rs 85,500 crore in the first half of the financial year. Of this, Rs 30,000 crore was sanctioned by the government and another Rs 30,000 came from upstream companies.

With diesel prices Rs 9.28 below the market price (subsidised LPG cylinder, Rs 520, and kerosene, Rs 31), OMCs are incurring daily under- recovery of Rs 411 crore. Delayed compensation and rising working capital requirement force oil marketing firms like IndianOil to turn to borrowings

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