IOC seeks govt guarantee on AI dues
New Delhi   03-Nov-2011

Mr. R S Butola
Chairman,
IndianOil
Flagship refiner-marketer IndianOil (IOC) has sought a comfort letter from the civil aviation ministry assuring payment of Air India’s unpaid fuel bills that are a tad short of the approved credit limit, even as the government has given a 60-day leeway to the national carrier for clearing dues.

This is perhaps the first time that a public sector oil company is standing up to the government to safeguard its business interest and uphold the principles of corporate governance. Oil ministry sources said IndianOil chairman R S Butola recently informed petroleum secretary G C Chaturvedi that the company management was drawing flak from independent directors on the board over Air India’s accumulating dues. The independent directors on the IndianOil board have been vocal in recent times and questioned the management as to why the company was suffering due to delayed payments and loss on interest but still continued to supply fuel to a “defaulting party”.

IndianOil supplies 65% of Air India’s fuel needs and is refueling its planes on a cash-and-carry basis. The carrier enjoys a credit limit of Rs 1,700 crore approved by the government but had ran up bills of Rs 1,578 crore till the third week of August. This excludes Rs 373 crore interest on the dues. While the unpaid bills have been rising, the ministerial panel—set up to figure out ways to revive the financially beleaguered carrier—on August 18 decided to allow a 60-day credit period to the airline. If the decision is implemented, Air India’s total dues would rise to Rs 2,200 crore, excluding interest, and force IndianOil to shut off the fuel tap—unless the government revises the credit limit to Rs 2,300 crore.

Under the circumstances, the sources said, Butola has suggested that the aviation ministry should give a letter assuring IndianOil of payments and indicating liquidation plan for the outstanding over a short period of time. Such a letter, it was argued, would serve as a guarantee from the government and help the IndianOil management to address concerns over corporate governance issues. Air India on August 16 awarded fresh contracts for fuel to state-run oil companies, including IndianOil that is to supply some 720 TKL (thousand kilolitres). Besides the 60-day credit, the new deal envisages enhanced discounts but refueling will be carried out against cash payment.