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Pay for oil subsidy delay, PSUS tell GOVT

State-owned oil refiners have sought the petroleum ministry’s intervention to get extra compensation from the government for losses suffered because of a delay in the release of subsidy.

The refiners — Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd — have urged the government to give them the borrowing cost they have to incur because of a delay in the payment of subsidy.

The oil marketing companies (OMCs) shoulder significant interest burden, which stood at Rs 5,224 crore during 2011-12, and Rs 6,514 crore in 2012-13, which was not compensated by the Centre.

“The continued incurrence of under-recoveries by OMCs is adversely affecting their financial and liquidity position,” former Planning Commission member Kirit Parikh said in a recent report.

The government bears a part of the revenue losses, or under-recoveries, that retailers incur on selling diesel, kerosene and domestic LPG cylinders at government-controlled rates. Upstream firms chip in with a substantial portion by way of a discount on crude oil and LPG they sell to retailers.

The rising under-recoveries of OMCs, coupled with a delay in timely compensation, have affected their cash flow, compelling them to borrow heavily at high interest rates. “The rising borrowings have also resulted in the deterioration of the OMCs’ debt-equity ratios,” Parikh said.

IOC officials said, “The rising debt and deteriorating debt-equity ratios are a matter of concern.”

The debt-equity ratio of IOC stood at 1.32 by the end of 2012-13, HPCL at 1.43 and HPCL at 2.46. They had a combined borrowing of Rs 1,38,552 crore last fiscal, with IOC borrowing Rs 80,894 crore.

“The delay in compensation by the government of the under-recoveries incurred, forces them to resort to borrowings for maintaining their cash flow. Growing borrowing levels, along with high interest rates in the country, escalated the debt servicing burden and made a major dent on their financial health,” the official said.

The OMCs have suggested the inclusion of interest cost as a lump sum amount or disaggregated across various products, on a per unit basis.

According to some estimates, the borrowing of IOC alone is expected to touch Rs 110,000 crore this fiscal, which could have an impact on its capital expenditure plan.

Analysts said increased borrowing by the oil marketing companies could adversely impact their investments and they might have to curtail their plans if the government did not take steps to pay subsidy in a timely manner and link fuel prices to the market.

The three oil firms plan to invest Rs 110,110 crore during the Twelfth Five-Year Plan (2012-17) with IOC’s capex requirement at Rs 56,200 crore, BPCL at Rs 32,789 crore and HPCL outlay at Rs 21,121 crore.

However, to fund these plans they have to generate Rs 20,000 crore every year or resort to heavy borrowing, which seems to be highly unlikely as they are already overleveraged. They may have to trim their capex plans sooner or later, analysts said.

Fuel retailers in the first quarter of this fiscal had lost Rs 25,579 crore on the sale of diesel and cooking fuel.

The three upstream oil firms — ONGC, Oil India Limited and GAIL (India) Ltd — have discounts of Rs 15,303.84 crore.

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