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Subsidised fuel may slow IOC’s expansion plan

Subsidised fuel may slow IOC’s expansion plan
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First Published: Tue, May 17 2011. 01 07 PM IST
Updated: Tue, May 17 2011. 01 07 PM IST
New Delhi: India’s biggest oil refiner and fuel retailer Indian Oil Corp could slow some domestic expansion projects as the company incurs heavy losses on the sale of subsidised fuel, its head of finance said on Tuesday.
“We are ready with detailed feasibility reports and all. We will see what is the best time to launch them, may be once the situation on subsidised fuel becomes clear,” P.K. Goyal said in his first interview after assuming the post on 2 May.
He said these projects could be pushed back by a year or two due to lack of clarity on subsidies and pricing of fuels.
Government currently caps prices of diesel and kitchen fuels and the shortfall is covered by state spending, upstream companies and the refiners.
IOC plans to expand capacity of its 274,000 barrels per day (bpd) Gujarat refinery, besides setting up a petrochemical facility at Paradip, where it is building a 300,000 bpd refinery, and a coker at its 150,000 bpd Haldia refinery.
Indian state-run oil firms raised petrol prices, which were deregulated in June 2010, by 8.6% from Sunday — still not fully reflecting international crude prices.
Oil firms are still waiting for the government to decide on pricing of diesel, kerosene and cooking gas, which have not changed since June 2010 when global crude prices were below $80 a barrel. Crude is currently over $110 per barrel.
Goyal said there was scope for a further increase in petrol prices.
“Petrol prices are still Rs 5.50 a litre less than the desired market prices, on diesel the prices should be raised by Rs 16.49 a litre,” he said, adding his firm’s daily revenue loss on subsidised fuel sales is about Rs 260 crore.
Petrol prices in Delhi are now Rs 63.37 ($1.403)per litre while diesel sells at 37.75 rupees per litre.
He said beside reducing the companies’ revenue losses and saving on subsidy spending, the price increase would help in controlling consumption.
Diesel demand, which makes up over a third of refined products consumption in Asia’s third-largest oil consumer, jumped 6% in March.
He said IOC, which has imported 440,000 tonnes of diesel in April-May, will not import the fuel for June and July as its refinery production would be sufficient to meet local demand. Last year, IOC imported 1.3 million tonnes of diesel.
Goyal said his firm’s borrowings have grown by Rs 15,000 crore in 45 days due to sale of fuels at below-market prices.
He said IOC’s borrowing has climbed to about Rs 68,000 crore, with about 33 percent of this in foreign currency.
We are increasing our foreign borrowings. The average rate is about six percent but the rupee rate has increased,” he said.
The Reserve Bank of India has pushed up its core lending rate nine times since March 2010, with the latest 50 basis point hike last week taking its key policy rate to 7.25%.
“Domestic borrowing, short-term borrowing will not get less than 9.5%. We are increasing our foreign borrowings which are available at substantially lower rate than rupee borrowings, overall cost of foreign borrowing is about 300 basis points,” he said.
IOC, which controls about 1.3 million bpd of refining capacity, plans to import about 50 million tonnes or 1 million bpd of crude in 2011/12, including 11-12 million tonnes (220,000-240,000 bpd) from spot markets, Goyal said.
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First Published: Tue, May 17 2011. 01 07 PM IST