Oilcos may run out of Cash to buy Oil by December
New Delhi 10-Nov-2011
India is staring at an energy crisis after December as state run refineries will start shutting down because they will run out of money to import crude oil, IndianOil Corporation Chairman RS Butola said after declaring the company's biggest quarterly loss.
IOC posted the second successive quarterly loss because it has not been compensated for selling kerosene, cooking gas and diesel below market rates. This is forcing IOC to buy crude oil with borrowed money, but banks cannot endlessly support this as the company's borrowings have surged to over Rs 73,000 crore and it is unable to raise prices of fuels.
"We will face problems in raising money after December. Means, we will not have enough money to import crude. We will be forced to shut down some refineries and supplies will suffer," Butola said.
Oil companies are trapped between the government's political and economic compulsions, which are blocking moves to pay subsidy or to raise fuel prices: The government is under strong political pressure to freeze fuel rates as inflation is already high while the finance ministry, which is struggling to meet its fiscal targets, is looking for ways to raise revenue and reduce expenditure on subsidies.
Brent crude was trading at $114 on Wednesday, down from the previous day's high of nearly $116, but still too high for Indian companies. The International Energy Agency said oil prices would head towards $150 if adequate investments are not made in the Middle-East and north Africa.
Butola said the company had reported its "worst ever" loss of Rs 7,486 crore in the second quarter of the current fiscal after the government did not pay it a penny to compensate its Rs 11,757-crore revenue loss.
Interest rates too Weigh
After the news of the company's poor financial performance, IOC's stock slipped 3.73% to Rs288 on the BSE. The company's gross refining margin (GRM) also turned negative in the second quarter compared to $6.63 a barrel in the same quarter in the previous fiscal, Butola said, but did not quantify the margin.
"We are still reconciling certain figures, but in the first half of 2011-12 it is $2.42 (a barrel)," he said, adding the GRM of the company in the first quarter of this year was $4.71 a barrel. "Never before have we witnessed this kind of quarterly losses," Butola said.
The company had made a net profit of Rs5,294 crore in the same quarter last year. Butola said high interest rates had magnified the company's problems. For the first half of the current fiscal year, the company reported a net loss of Rs11,204 crore compared to Rs1,906 crore net profit in the same period a year ago.
"This has been an unusual year that witnessed significant price upheaval and rupee depreciation," he said. IOC's total revenue loss for selling fuel below market rates in the second quarter was Rs11,757 crore. "Of this, Rs4,300 crore came from upstream firms. We had to absorb the rest," he said.
According to convention, staterun upstream companies such as ONGC and OIL share one-third of the revenue losses incurred by state oil refiners through discounts on crude oil. The rest is split between the government and oil marketing companies.
"Had we have received the government's compensation, we could have made a profit of Rs 4,300 crore," IOC Director (finance) PK Goyal said. State-run refiners IOC, Bharat Petroleum and Hindustan Petroleum are selling diesel at Rs8.58 a litre below market rate. They are losing Rs25.66 a litre on kerosene and Rs260.5 per cylinder of cooking gas. Both HPCL and BPCL, which declared their second quarter results recently, posted a combined net loss of over Rs 6,500 crore.
Butola hinted the companies could reduce petrol prices after November 16 as they were making "a small margin" in petrol, a de-regulated fuel. "If global MS (petrol) prices do not increase, we will decrease its price next fortnight," he said.
