The government indecisiveness on petroleum price rise, coupled with late release of cash subsidy, has sent the borrowings of three government-controlled oil marketing companies to an all-time high of around Rs 118,000 crore. Though crude oil prices have not reached the level of 2008, when they climbed to a record level of $147 a barrel before crashing, the current high borrowings are primarily due to revenue loss on diesel, kerosene and LPG remaining at high levels from the beginning of 2011-12.
Indian Oil Corporation’s borrowings crossed Rs 68,000 crore in the third week of May and stood at Rs 68,482 crore on June 6, Chairman and Managing Director R S Butola said. “It had touched Rs 67,000 crore in 2008. The borrowings may come down if the government releases around Rs 11,000 crore that we have to get as subsidy compensation for the fourth quarter ending March 2011,” said director (finance) P K Goyal. Besides, IndianOil will get around Rs 3,000 crore as additional compensation from upstream (oil and gas producing companies) companies.
The other oil marketing companies — Hindustan Petroleum Corporation and Bharat Petroleum Corporation — have borrowings of Rs 25,000 crore each, which, while being lower than the 2008 number, are significantly high.
| SLIPPERY GROUND | ||
| Period | Indian Oil’s borrowing (in Rs crore)** | Average price of Indian basket of during the year (in $/barrel)* |
| 7-Mar | 27,083 | 62.46 |
| 8-Mar | 35,523 | 79.25 |
| 9-Mar | 44,972 | 83.57 |
| 10-Mar | 44,566 | 69.76 |
| 11-Mar | 52,734 | 85.09 |
| Till June 6, 2011 | 68,482 | 110.00 |
| **As on March 31; *yearly average BPCL and HPCL have combined borrowings of Rs50,000 crore Total borrowings of three companies at Rs over Rs 118,000 crore | ||
High borrowings at a time when interest rates have also risen by 100 basis points over the last year, have exposed the companies to high interest costs. “IndianOil incurred interest costs of Rs 2,670 crore in the previous financial year and in the current year the costs will be certainly more,” said Goyal.
The high borrowing has led to a skewed debt-equity ratio of 1.24:1 for IndianOil. The biggest marketer of petroleum product has a target to keep it at 1:1.
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Butola said the company was nearing its borrowing limits with the banks but added that the government and the Reserve Bank of India would not allow the marketing companies to face liquidity problems. “If price is not revised, we will have to continue borrowing Rs 5,000-6,000 crore more every month,” Butola said.
OMCs, which import 80 per cent of their crude oil requirements sell diesel, kerosene and liquefied petroleum gas (LPG) at government-subsidised prices, resulting in losses. These losses are usually compensated through a mix of cash subsidy from the government and discounts from upstream companies Oil and Natural Gas Corporation and Oil India.