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IOC expects fuel subsidy compensation by May

IOC expects fuel subsidy compensation by May
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First Published: Mon, Apr 19 2010. 11 28 PM IST

 Marketing losses: Indian Oil director (finance) S.V. Narasimhan. Madhu Kapparath / Mint
Marketing losses: Indian Oil director (finance) S.V. Narasimhan. Madhu Kapparath / Mint
Updated: Mon, Apr 19 2010. 11 28 PM IST
Mumbai: State-owned oil marketer Indian Oil Corp. Ltd (IOC) is hopeful of getting compensated for revenue losses by May. S.V. Narasimhan, director (finance), said in an interview that this would help his firm meet fresh revenue losses in the new fiscal, estimated to run up to Rs80,000 crore. Edited excerpts:
Marketing losses: Indian Oil director (finance) S.V. Narasimhan. Madhu Kapparath / Mint
IOC’s uncompensated revenue loss could still be Rs10,000-11,000 crore. How will you work around it?
This uncovered under-recoveries relate to LPG (liquefied petroleum gas) and kerosene, that amounts to over Rs11,000 crore for Indian Oil, and we have, of course, taken it up with the minister of petroleum. Minister of petroleum is closely pursuing (the issue) with the minister of finance. We are still confident of getting substantial under-recoveries compensated, may be in May.
At current crude prices, the losses for the entire oil-marketing sector could add up to Rs80,000 crore in fiscal 2011. Aren’t you worried?
Definitely worried, because last year crude averaged to about less than $70 per barrel. Now for the current year, in April itself, crude prices are in the range of $84-85 per barrel. So under-recoveries is in excess of Rs80,000 crore, the projected under-recoveries, unless as it happened in 2008-09 for any recent price crash, which at this stage appears removed.
So 2010-11 is a concern and we hope that 2009-10 will be compensated adequately. Then some measures will be taken for compensation or some other measures based on the (Kirit) Parikh Committee report (on oil prices) to be taken in 2010-11.
Besides the hike in crude price, what else are you losing every day on products like petrol and diesel?
Petrol and diesel losses are in the range of Rs5-6. Diesel is less than Rs5 and petrol is in the range of Rs5.5, but as a mechanism, of course, petrol and diesel are compensated with upstream companies. The immediate worry is about liquidity, since under-recoveries are increasing. We are sticking with the government for ensuring adequate cash flows to the companies.
What has the government told you?
The government has said that compensation will be generally in the form of cash rather than the bonds, which they have already done by giving Rs12,000 crore cash. So first of all, we talk about further compensation, we are talking in the context of 2009-10. So even if 2009-10 compensation comes, that will at least reduce our problem of liquidity... I am sure you have seen (in the) last two-three years, something around May-June, when government takes a review and assessment of the under-recoveries and then measures are put in place.
What kind of measures are you expecting?
I will not be able to say in what way the mechanism will operate this year. But what is generally done is an assessment is made somewhere at the end of first quarter and then, based on assessments, a mechanism is put in place. Subsequently, whether crude oil prices go upwards or downwards, depending on that further review may take place.
cnbctv18@livemint.com
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First Published: Mon, Apr 19 2010. 11 28 PM IST