New Delhi: At a time when the consumers are already reeling under a fuel price increase, state-owned Indian Oil Corp. Ltd (IOC) on Wednesday cautioned that fuel supplies in the country will be affected beginning December as it will not be able to borrow more to pay for crude imports.
IOC is the country’s largest fuel retailer. It had a total borrowing of Rs 73,296 crore on 30 September with a debt-equity ratio of 1.66:1, compared with 0.95:1 on 31 March.
“This has been an unusual year for IOC and the Indian oil industry due to upheaval in prices... we are living in uncertainties,” said chairman and managing director R.S. Butola.
Fund crunch: Indian Oil Corp. chairman R.S. Butola. Bloomberg.
“If the situation continues like this, it will be very difficult to borrow from December. If we can’t borrow, we wouldn’t be able to import, leading to shutdown of refineries, which, in turn, will lead to shortages,” he said.
India depends on imports to meet 80% of its oil needs and is particularly vulnerable to price volatility in crude oil. India accounts for around 3.5% of the global consumption of crude oil and is the world’s fifth-largest energy consumer.
India imported 163.59 million tonnes (mt) of crude oil, 17.31 mt of petroleum products and 9.79 mt of liquefied natural gas in 2010-11. By 2030, the country will likely import 90% of its energy needs.
A situation of scarcity will give opposition parties more ammunition against Prime Minister Manmohan Singh’s government in the backdrop of corruption scandals and a steep rise in prices, especially of food. Oil marketing companies (OMCs) increased petrol prices by Rs 1.80 a litre (in Delhi), leading to widespread protests and even a threat of withdrawal of support by the Trinamool Congress (TMC) to the Congress party-led United Progressive Alliance government, which later petered out.
“If we were to be asked not to increase prices, we would suggest to the government to provide compensation for the same, which has not been the case,” said Butola. More expensive fuel will add to commodity prices.
In another development, IOC announced its worst quarterly results due to unmet under-recoveries and an increase in interest expenditure.
IOC reported a net loss of Rs 7,486 crore for the second quarter, against a profit of Rs 5293.95 crore in the corresponding period a year earlier. Revenue increased 25.5% to Rs 93,868 crore.
IOC shares fell 3.73% to Rs 288 each on the Bombay Stock Exchange on Wednesday; the Sensex dropped 1.18% to 17,362.10 points.
The government typically meets at least half of the revenue that state-run fuel retailers lose on selling diesel, domestic liquified petroleum gas (LPG) and kerosene at below market price. But it has given only Rs 15,000 crore against the Rs 64,900 crore retailers have lost on fuel sales in the first half of the this fiscal year.
“We had a total under-recovery of Rs 11,757 crore on selling diesel, domestic LPG and kerosene below cost in the July-September quarter. Of this, Rs 4,300 crore came from upstream firms and we had to absorb the rest,” said Butola.
IOC, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd are expected to lose a total of Rs 1.22 trillion this fiscal year for selling fuel, including diesel, kerosene and LPG, below cost.
“Had there been no under-recoveries, we have registered a profit of Rs 4,300 crore. This is the worst quarter result for us in our history. We had a loss of Rs 3,719 crore in the first quarter. We are also seeing low GRMs (gross refining margin),” said Butola.
GRM, the difference between the total value of petroleum products sold and the price of crude, was $2.42 a barrel for the first six months of the year.
IOC didn’t give the GRM for the second quarter, stating that the figures were yet to be reconciled.
“It would be rather negative,” admitted Butola. GRM in the second quarter of fiscal 2010-11 was $6.63 a barrel.
“We will review our capex plans in end-December or the first week of January, and if our borrowing continues to remain high, we will cut our capex plan,” director, finance, P.K. Goyal said. IOC had planned a capital expenditure of Rs 14,800 crore for 2011-12.
PTI contributed to the story.