IndianOil will survive liquidity crisis
Mumbai   21-Oct-2008
<i>But sticky wicket ahead if situation persists next fiscal</i> IndianOil is confident of surviving the liquidity crisis this year but may not be as lucky if the issue flares up again next fiscal, chairman Sarthak Behuria said. “This has been a very difficult period for us but we will pull through somehow. We cannot go through this again for another year but I am hopeful that things will start looking up from 2009-10,” he told DNA Money. Behuria said the positive indicators are already in place with crude prices going down to manageable levels of $75 per barrel from $147 over two months ago and the government gearing up to issue oil bonds to IndianOil, Hindustan Petroleum and Bharat Petroleum. These will partially compensate for the losses the three have incurred on sale of petrol, diesel, liquefied petroleum gas (LPG) and kerosene since January this year. Behuria said the bonds would be a great help, given that the combined borrowings for the three firms are near Rs 1,20,000 crore. “Borrowings have been steadily going up over the last six months and unless our liquidity position improves, there will be additional pressure servicing debt. While we are glad that crude prices have been going down, remember that we bought stocks at higher prices and inventory carrying costs are an added area of concern,” he said. Indications are that the government will issue Rs 40,000-crore oil bonds for the January-June period though the three navratnas have been pressing for settlement of dues till end-September, aggregating Rs 65,000 crore. IndianOil’s share is Rs 35,000 crore. However, sources say that oil marketing firms have already booked under-recovery losses of Rs 90,000 crore till end-September which, along with crude inventory costs, is bound to reflect on their results for the first half. The silver lining is that falling crude prices have lowered their projected annual losses on domestic fuel sales to Rs 1,47,592 crore (calculated for the fortnight beginning October 16) from the earlier estimate of Rs 2,50,000 crore. The weakening rupee is a cause for concern but the Reserve Bank of India has tried to check this through a foreign exchange window for the oil majors. This could also extend to the oil bonds, tipped to be issued this week, through RBI’s special market operations. On an average, the three buy $3.5 billion of forex per month for crude oil purchases at current prices. On pressures of coping with diesel demand and fears of shortage, Behuria said that IndianOil’s new refinery at Paradip, along with the Panipat expansion, would ensure adequate supplies. But these initiatives will take time and the interim period of 1-2 years could see occasional rationing at petrol pumps if diesel demand comes under pressure from the power sector. The problem, said Behuria, is that diesel is liberally used in non-transport applications such as power as it is the cheapest fuel available. He refused comment on the move to introduce dual pricing for diesel. He said the best way forward was to free both petrol and diesel from the administered pricing mechanism and allow market forces to take over. Subsidies on the two fuels are at their lowest now with petrol at Rs 2.85 per litre and diesel at Rs 7.26. According to IndianOil, for the fortnight beginning October 16, it is losing Rs 5 crore daily on petrol, Rs 55 crore on diesel, Rs 61 crore on kerosene and Rs 32 crore on LPG.