OIL stops credit to IOC on crude oil purchases
New Delhi   19-Oct-2011

Public sector explorer Oil India (OIL) has turned down IndianOil’s (IOC) request to allow credit on buying crude oil. Also, India’s largest explorer ONGC said that it has received similar request from Bharat Petroleum Corporation (BPCL), but have not received from IOC.

“We have told IOC that we will not offer any crude oil on credit. We are already taking a hit because of sharing under-recoveries,” said a director on board of OIL who did not wish to be named. “If they (IOC) default in clearing dues, OIL will charge interest according to SBI base rate and premium. These are clearly mentioned in our sale agreement with IOC,” the director said.

Presently, IOC pays OIL on a 21-day cycle for crude purchases that the refiner wants to be extended till government transfer subsidy amount. The refiner pays through US dollar converted into rupee on prevailing exchange rate. IOC buys crude oil worth nearly Rs 417 crore in a month from OIL and for another Rs 1,267 crore from ONGC every month.

When contacted P K Goyal, director (finance) at IOC said the refiner has not received any communication from explorer on their request for offering credit on crude oil purchases.

A senior official at Oil Natural Gas Corporation told Financial Chronicle that it has received request from BPCL for allowing credit on crude purchases. “We have not replied to BPCL yet. But, most likely this cannot be done.” When asked if IOC has also written to Oil Natural Gas Corporation asking for credit, the official said, “We have not received any request from IOC.”

Indian biggest state-run refiner IOC is facing severe cash-crunch because of selling petroleum products below market cost. Government is not transferring oil subsidy regularly that has forced the refiner to borrow every month. Presently, IndianOil’s total debt has crossed Rs 78,000 crore. Every fluctuation is in exchange rate of US dollar to rupee cost Indian refiners Rs 8,000 crore. On Tuesday, rupee hit a near one-week low at Rs 49.50-49.60 for every dollar.