IOC puts overseas, FPO plans on hold
New Delhi   11-Feb-2011

IndianOil (IOC) has put its overseas investment plans in refining and marketing of petroleum products on hold after suffering a decline in net profit for the nine months ended December.

S.V. Narasimhan, chairman of the country’s largest oil refining and marketing company, said IOC’s follow-on public offering (FPO) of shares has also been temporarily delayed because of rising international prices of crude oil.

“As of now, there are no (overseas investment) plans. It doesn’t make sense to make large investments outside. Our priority outside India is in the exploration and production sector and not in refining or downstream activities,” Narasimhan said.

The state-owned firm had planned to acquire a stake in a 15 million tonnes per annum (mtpa) integrated refinery being built at a cost of around $10 billion (Rs.45,600 crore) at Ceyhan in Turkey to serve as a gateway to the European market.

IOC is the largest oil importer in the country. Its exploration and production initiative was driven by the desire to insulate itself against volatile crude prices and ensure long-term supplies to keep its refineries running.

On Thursday, the company reported a 135% increase in net profit for the three months ended December from a year earlier—mainly because the government paid it Rs.4,442 crore as compensation for losses suffered by selling petroleum at subsidized prices.

Net profit in the December quarter rose to Rs.1,634.76 crore from Rs.696.59 crore a year earlier. Revenue increased 16.7% to Rs.82,179 crore.

For the nine months ended 31 December, IOC said its net profit declined 24% to Rs.3,540 crore from a year earlier, although revenue increased 18% to Rs.2,34,902 crore.

In June, the government partially deregulated fuel prices, allowing oil companies such as IOC to fix the price of petrol instead of selling it at government-determined rates. But with international crude prices rising sharply, state-run oil companies are faced with a substantial revenue loss from having to sell diesel, kerosene and liquefied petroleum gas (LPG) at below-cost price to keep inflationary pressures under check.

“A clear-cut subsidy sharing formula is the need of the hour,” said Prayesh Jain, associate vice-president, research, at stock market research firm IIFL India Private Clients. “The way forward for the OMCs (oil marketing companies) is difficult. They are starved for working capital and even the interest costs are rising.”

Narasimhan said the FPO has been “temporarily put on hold” because of a surge in the price of crude oil to the highest level in two years. The government, which holds a 78.92% stake in the company, planned to divest 10% and the company was to offer investors an equivalent number of new shares to raise Rs.20,000 crore.

Government-owned OMCs such as IOC, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd currently lose Rs.9.23 per litre on diesel, Rs.21.60 per litre on kerosene, and Rs.356.07 per 14.2kg LPG cylinder.

At current oil prices, IOC expects to end the year with a revenue loss of around Rs.42,000 crore. The total under-recovery expected for the industry is around Rs.75,000 crore.

The three OMCs had delayed the announcement of their results as they were awaiting the Rs.8,000 crore subsidy given by the government.

Shares of IOC fell 0.52% on the Bombay Stock Exchange to close at Rs.312.80 on Thursday.