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Bonds to the rescue: IndianOil hopes to end fiscal in profit

Bonds to the rescue: IndianOil hopes to end fiscal in profit
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First Published: Wed, Feb 25 2009. 09 28 PM IST

Positive note: IOC chairman S. Behuria says the government has worked out the oil bonds as a balancing figure to recover losses. Ramesh Pathania / Mint
Positive note: IOC chairman S. Behuria says the government has worked out the oil bonds as a balancing figure to recover losses. Ramesh Pathania / Mint
Updated: Wed, Feb 25 2009. 09 28 PM IST
New Delhi: State-run Indian Oil Corp. Ltd (IOC), the nation’s largest oil refiner, expects to end the current fiscal year with a profit despite an anticipated inventory loss and higher interest burden, chairman S. Behuria said on Wednesday.
Positive note: IOC chairman S. Behuria says the government has worked out the oil bonds as a balancing figure to recover losses. Ramesh Pathania / Mint
The profit will still be lower than what IOC earned for the year ended 31 March, Behuria said in an interview.
“For the first nine months (of 2008-09) we showed a Rs3,673 crore loss,” he said. “It cannot be as healthy as the past...”
State-owned refiners have been losing money by selling petrol, diesel and kerosene at a price below cost. IOC earned Rs415 crore and Rs2,959 crore in net profit for the first and third quarters of 2008-09, respectively; it posted a loss of Rs7,047 crore for the three months ended 30 September, a quarter in which oil prices soared to a record of $147 a barrel.
The company earned Rs6,962.58 crore in 2007-08, a fall of 7.15% from a year earlier, on revenues of Rs2.24 trillion, up 12.55% from the previous year.
The government gives bonds to IOC and other public sector refiners to compensate them for selling products at state-mandated prices that are kept low to shield consumers against inflation.
“The government has worked out the (oil) bonds as a balancing figure... If we are fully compensated for under-recovery (loss suffered by selling petroleum prices at government-mandated prices), we should show okay results (for the full year),” Behuria said.
“We should have a positive outlook, unless things drastically change,” he said.
Still, IOC expects to take an inventory loss of Rs3,500 crore, and a Rs2,000 crore hit from the increased cost of servicing its debt because of the delayed release of oil bonds, according to the chairman.
Crude prices have slid to around $40 (Rs1,992) per barrel as the commodity cycle turned last year with a downturn in the global economy.
“Global oil prices falling by over two-thirds of last year’s peak have helped oil marketing companies recover lost ground,” said Deepak Mahurkar, associate director, oil and gas industry practice, at audit and consulting firm PricewaterhouseCoopers. Oil prices had touched $147.27 a barrel in mid-July.
The gross under-recoveries for 2008-09 for the three oil marketing companies—IOC, Bharat Petroleum Corp. Ltd, or BPCL, and Hindustan Petroleum Corp. Ltd, or HPCL—are estimated at around Rs103,908 crore. Of this, IOC alone accounts for around Rs60,000 crore.
Under-recovery is a term used for the difference between the price of crude and the price at which products processed from it are sold.
“Even today on petrol and diesel, there is slight over-recovery. We have a little cushion...I do not think 2008-09 position will repeat at least for the next two years...,” Behuria said.
The three oil marketers reported a combined loss of Rs11,094 crore in the period from April to December compared with a profit of Rs9,679 crore a year earlier.
These companies have registered losses even after taking into account oil bonds of Rs60,967 crore (first three quarters) issued by the government and a price discount of Rs32,000 crore given by state-owned oil explorers and producers such as Oil and Natural Gas Corp. Ltd and Oil India Ltd.
While Rs50,980 crore of the oil bonds have been issued since April, IOC has already accounted Rs34,165 crore in its books. The oil marketers are expecting another tranche of oil bonds worth around Rs10,000 crore for the fourth quarter.
“The government is waiting to see how the companies will fare during the last quarter (fourth quarter of 2008-09) before they release the bonds,” said an IOC executive, who didn’t want to be identified.
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First Published: Wed, Feb 25 2009. 09 28 PM IST