New Delhi: In a bid to stem losses, Indian Oil Corp. Ltd, or IOC, the country’s largest oil refiner and marketer, said it has stopped selling new liquefied petroleum gas, or LPG, cylinder connections and no longer sells petroleum products on credit to its retail outlets.
The state-owned company added that it is looking at differential pricing for diesel sales for retail consumers, industrial houses and power sector but didn’t elaborate on how and when this would be done.
“While the result on the physical parameters have been extremely good as there has been a marketing growth of 8.5%, financially we are not very happy. We expect our credit ratings to take a beating,” said Sarthak Behuria, chairman and managing director, IOC. The company, and other state-owned oil marketing firms—together these firms dominate the fuel retailing business here—have to sell petrol, diesel and other fuel at prices mandated by the government which are often lower than the cost of production. The firms are compensated for these losses, also called underrecoveries, but such compensation is in the form of oil bonds and, usually, late.
IOC made its recommendations on differential pricing for diesel to the B.K. Chaturvedi-headed committee on oil prices, appointed by Prime Minister Manmohan Singh to study the losses or under-recoveries suffered by government-owned oil marketing firms due to subsidy sharing.
“Let’s see how much of our recommendations are accepted. Once you have dual pricing, it will again encourage diversion as we have seen in the case of kerosene and LPG. Diesel sales continue to grow at 20% due to a lot of diesel being used for the power sector,” said Behuria.
IOC sold 13.3 million tonnes of diesel during the first quarter of which 10% fed generators used to generate power. The company loses Rs410 crore a day because it sells petrol, diesel, kerosene and liquefied petroleum gas at a loss of Rs16.70 a litre, Rs26.71 a litre, Rs38.09 a litre and Rs338.53 per cylinder, respectively.
“We have not been able to service our 200,000 wait-listed (LPG) consumers with the speed we used to. There is a two-month waiting list,” he said. “(And) if some dealers had enjoyed credit options, those were the good times.”
The company plans to “purify” its LPG network, where it wants the customers with access to piped natural gas to surrender their LPG connections in Delhi and Mumbai. IOC has a total of 51 million LPG connections, of which about 6% are commercial.
The company has current borrowings of Rs42,500 crore and its monthly borrowing has increased to Rs7,500 crore per month. Around 30% of this is long-term debt. IOC’s net profit fell to Rs 415 crore, or Rs3.48 a share, in the quarter ended June from Rs1,470 crore, or Rs12.32, a year earlier.
“Controls on fuel prices continue to hit Indian refiners and we expect the uncertainty about refiners’ earnings to continue as long as oil prices remain high,” said Vinay Nair, an analyst at Khandwala Securities Ltd in Mumbai, who has a “neutral” rating on the stock.
Bloomberg contributed to this story.