Mumbai: State-owned oil refiner Hindustan Petroleum Corp. Ltd (HPCL) has cautioned that a rollback in the petrol price hike will make it book substantial losses, leaving the debt-ridden company with little cash to buy adequate crude to meet domestic demand, eventually forcing it to cut supplies.
HPCL had a debt of around Rs 31,000 crore on its books as on 30 September, chairman Subir Roy Choudhury said at a press conference in Mumbai, adding that the company may soon hit its borrowing limit of Rs 35,000 crore, after which banks may not lend to the company. Oil-marketing firms often borrow money from banks to buy crude from the international market.
“There is pressure on working capital,” Roy Choudhury said. “The interest cost on borrowings has to be serviced by us without any help from the government. Where will the money come from?”
While the government may compensate the oil-marketing firm’s losses on selling diesel, kerosene and liquefied petroleum gas (LPG) below cost price to an extent, the company will receive that money only at the end of the year, the HPCL chairman said. “How will we run operations throughout the year,” Roy Choudhury asked.
The company was making efforts to cut costs and reduce its operating expenditure by 10% by the year-end, Roy Choudhury said. HPCL will also review its capital expenditure outlay for planned projects and push back some expenses to make more room to meet non-planned expenses, he said.
Among the three state-run oil-marketing firms—Indian Oil Corp. Ltd (IOC) and Bharat Petroleum Corp. Ltd (BPCL) being the other two—HPCL was more dependent on fuel-retailing operations, said Chirag Dhaifule, an oil and gas analyst with Jaypee Capital Services Ltd. IOC and BPCL also have a sizeable presence in other business segments such as petrochemicals and upstream oil and gas exploration, Dhaifule pointed out.
“Unless the government gives them their share of the subsidy in the third or fourth quarter, it will be difficult for them to buy crude from the international market as no one will sell it on credit,” Dhaifule said.
HPCL’s debt-servicing ability may soon become a cause of concern, Dhaifule said.
HPCL witnessed a net under-recovery of Rs 6,185 crore on selling petroleum products below cost price in the fiscal year till 30 September, after discounts offered by upstream oil and gas companies on crude purchases and a cash compensation from the government in the June quarter. For the September quarter, the government is yet to pay any compensation to the oil-marketing firms.
HPCL estimates a net under-recovery of Rs 18,551 crore for full fiscal 2012.
Only petrol prices have been deregulated since 26 June 2010. Petrol has become 31.2% more expensive since then and is retailing at Rs 73.31 per litre in Mumbai.
The latest hike of Rs 1.82 per litre of petrol announced on 3 November was met with sharp opposition from political parties. The biggest ally of the ruling United Progressive Alliance government, the Trinamool Congress, has even threatened pulling out of the government unless there is a rollback.
HPCL posted a loss of Rs 3,364.4 crore in the September quarter, compared with a profit of Rs 2,089.6 crore in the year-ago period.
On Friday, shares of HPCL fell 0.48% to close at Rs 339.65.