IOC set to sail into profit on FPO eve
New Delhi   01-Nov-2010

IndianOil (IOC) is expected to announce a net profit of around Rs. 2,500 crore for the first half of the current financial year (April-September) with the finance ministry agreeing to release an additional Rs. 3,000 crore to the oil marketing companies as the government’s share of the fuel subsidy bill.

The finance ministry had earlier this month agreed to release only Rs. 10,000 crore but the oil companies did not think this was sufficient to enable them to announce a respectable profit for the first half of the current financial year. The figure has now gone up to Rs. 13,000.

According to reliable sources, while IOC, will get Rs. 7,280 crore of this amount, Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) will get Rs. 2,860 crore each.

“IOC was facing a particularly delicate situation as it is going in for a follow- on public offering (FPO) and any announcement of losses, whatever the reasons, could have impacted investor sentiments,” a senior company official remarked.

IOC chairman B. M. Bansal said the company had expected to get Rs. 7,000 crore as the government’s share of the subsidy burden for revenue losses during the first quarter and another Rs. 4,000 crore that it expects to lose in the second quarter.

These figures have been arrived at after taking into account the one-third share of the subsidy that is paid by upstream oil companies Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) and gas major GAIL. The upstream companies have already paid around Rs. 10,500 to the oil marketing companies.

The three blue-chip companies had been forced to announce losses in the first quarter (April-June) of the current financial year as the finance ministry had held up the government’s share of the subsidy on petroleum products.

The finance ministry has agreed to a last-minute release of another Rs. 3,000 crore as reimbursement to downstream oil marketing companies.

The total loss of the three companies on the sale of LPG, kerosene, petrol and diesel below- market prices amounts to around Rs. 31,000 crore.

Petroleum minister Murli Deora had met finance minister Pranab Mukherjee on Friday and asked him to enhance the amount to at least half of the Rs. 31,000 crore loss. However, the finance ministry has kept the figure short of this mark.

The government had on June 25 allowed the oil companies to switch to free market prices for petrol which had resulted in a Rs. 3.50 per litre hike in the fuel. Petrol prices have been raised twice again by nearly a rupee to bring them in line with the international market.

Diesel prices were raised by Rs. 2 per litre on June 25 but they are still fixed by the government as the fuel is considered politically sensitive since it is used in the farm sector.

The oil companies are currently losing Rs. 2.87 a litre on diesel which is priced a good Rs. 15 per litre cheaper than petrol.

In June, the government had also raised domestic LPG price by Rs. 35 per 14.2- kg cylinder and kerosene rates by Rs. 3 per litre.

However, the oil companies still lose Rs. 188 on each LPG cylinder that is sold to households and Rs. 16 per litre on kerosene sales to the public distribution system.