IndianOil's forex currency loans cross $6 billlion
New Delhi   02-Mar-2012

State-run fuel retailer IndianOil foreign currency loans have crossed $6 billion, indicating how uncertainties over pricing policy of successive governments have left India's biggest commercial enterprise running on borrowed money. The company on Thursday said $4 billion of the total borrowings were short-term loans. The firm is increasingly going for forex loans to save interest costs. "We get forex loans at 2%-3% interest rate, whereas borrowings from domestic lenders carry an interest rate of 12%-13%," director (finance) P K Goyal told TOI.

But other executives said the company has been increasingly forced to go for short-term borrowings to buy crude and meet other operational expenses as the government does not release the cash subsidy on fuels on time. "Borrowings are the only way out as the government neither allows price revision - of even petrol which is deregulated - nor releases the cash subsidy timely. Simultaneously, the actual physical outgo of cash on crude too has increased due to higher crude prices and the rupee's 15%-20% depreciation against the dollar since last August," one executive said requesting anonymity.

The government sets prices of diesel, kerosene and cooking gas much below their market price and makes up a third of the losses in cash. Oil producers give discount for another third, and the retailers absorb the remaining losses. In case of petrol, on paper retailers are free to revise pump prices in tandem with international oil. But in practice, the parent oil ministry calls the shots and informally tells them not to raise prices during politically sensitive times such as before elections. While the retailers seldom get the cash subsidy on time, they have to absorb the entire loss on petrol.

Caught with a cleft stick, IndianOil had last September sought shareholders approval to raise the ceiling on short-term borrowings to $5 billion. Analysts had questioned this move, saying it took away the companies ability to pressure the government to either allow raising of prices or release subsidy timely.

"If IndianOil had retained the earlier ceiling of Rs 80,00 crore, it could have told the Centre there was no money. The government would then have had to either allow prices to rise or release subsidy on time. But now it knows the company can go and borrow more," one analyst said.