Oil companies continues to Bleed
New Delhi   10-Nov-2011

Oil marketing companies continue to bleed as IndianOil Corporation (IOC) today posted its largest-ever loss of Rs 7,486 crore for the second quarter ended September 30 on account of unmet under-recoveries and increase in interest costs.

IOC’s huge loss surprisingly has come on the back of a robust increase in turnover which rose by 25.5 per cent to Rs 93,868 crore from Rs 74,766 crore during the same period last year. It also stood in contrast to a profit of Rs 5,294 crore for the same quarter of the previous year.

IOC has posted a loss of Rs 11,204 crore for the first half of 2011-12 as compared to a profit of Rs 1,906 crore for the same period of the previous year. The other two OMCs, BPCL and HPCL, have posted combined losses of more than Rs 12,000 crore for the first half.

The huge loss was on account of the unmet under-recovery or the amount which has not been compensated by the government on account of non-realisation of market-related prices for diesel, kerosene and LPG for the quarter.

The under-recoveries for all three oil companies for the first half of 2011-12 is Rs 64,900 crore. Despite a cash support of Rs 15,000 crore by the government and a contribution of Rs 21,633 crore by the upstream oil companies, the OMCs have declared huge losses for the first half of 2011-12.

RS Butola, Chairman, IndianOil said never before has the company witnessed such losses and this has happened in an unusual year when there has been price upheaval and rupee depreciation.

The borrowings of the OMCs have also been going up creating a tight situation to sustain them. IOC's borrowings increased from Rs 52,734 crore as of March 31, 2011, to Rs 73,296 crore as of September 30. IOC is seeking to raise its borrowing limit from Rs 80,000 crore to Rs 1.10 lakh crore but there are concerns that a weakened balance sheet and high interest costs may make the proposition very difficult. IOC expressed concern that if losses continue to mount it may have to cut down on its capital expenditure and expansion plans.

The OMCs are at unprecedented level of borrowings of Rs 1.29 lakh crore for working capital and dollar requirements for payment of funds for import of crude.

While petrol has been deregulated, prices of diesel, LPG and kerosene are controlled by the government and they make up for three-fourths of the petroleum demand in the country. These are the products where the OMC losses are coming from as their prices are not being revised while petrol is seeing regular hikes.

International broking house, UBS says deregulation of the oil sector looks unlikely given India’s tight fiscal situation and high inflation. It expects the government to continue to regulate fuel price subsidies against a background of high crude prices and a depreciating rupee.