 "IOC will exceed its capital expenditure plan: B Ashok")
IndianOil Corporation (IOC), the biggest marketer of petroleum products in India, is on the government agenda for disinvestment. With petrol and diesel prices now market linked and crude oil prices at historic lows, not only has the company’s borrowings have come down by 35 per cent, it is looking up to exceeding its capital expenditure, says B Ashok, chairman, IndianOil, in an interview with Sudheer Pal Singh & Jyoti Mukul. Edited excerpts:
How has the deregulation of both petrol and diesel pricing worked for the company’s finances?
Petrol was decontrolled in 2010 and diesel was freed last year. The single major gain for the oil marketing companies (OMCs) is that we do not use the language of under-recoveries any longer. Earlier when we were selling them at lower than the market prices, we used to get compensation from the government. Because the difference was huge, the compensation was not scheduled in a proper way. There used to be delays in this compensation and during those periods, we had to borrow money to meet our own working capital requirements. Consequently, we had to incur interest costs. With decontrol now, we have been able to realise the value of our product.
Are there plans to raise fresh money overseas or use the available window of rupee bonds?
We are able to generate resources internally for regular capital investment requirement of around Rs 15,000 crore. From time to time, whenever the need arises, we can approach the market. We did go to the market last year for our overseas acquisition. That was a syndicated loan meant to finance the acquisition of 10 per cent stake in an integrated liquefied natural gas (LNG) project under implementation in Ennore. This works out to around $4 billion investment from our side. We had made the initial payment of around $1 billion for which we took the loan.
What is the long-term capital expenditure (capex) plan IndianOil is working on?
Our 12th Plan (2012-17) capex is Rs 56,200 crore. Of this, we have already spent a little over Rs 40,000 crore. We have two more years to go for the Plan period to be over. In the current year, we plan to spend close to Rs 15,000 crore. So, we would be almost reaching the 12th Plan target. We will most likely exceed it.
How feasible is the government’s plan to introduce direct benefit transfer (DBT) mechanism in kerosene?
Kerosene subsidy targeting is a little more complex than LPG, but the government is exploring ways to ensure kerosene subsidy is also directly transferred into bank accounts. A few pilot projects have also been tried out, including one in Rajasthan. In Kotkasim in Alwar district, the subsidy was transferred into bank accounts, not electronically but through physical means. A substantial reduction in kerosene lifting was observed then. There is hope that beneficiaries benefit from this mechanism and the overall kerosene demand will come down through plugging of leakages.
How long do you think crude oil prices will remain low?
The shale revolution has changed the situation because a lot of crude used to move from the West Asia to the US, but today the US has become almost self-sufficient. Even the European markets are not doing well. So for the West Asian crude, the real market is Asia — India, China and probably Indonesia. Even in China, there is a slowdown. India has been the only bright spot, so it is an attractive market. The Organization of the Petroleum Exporting Countries has been consistent in saying that they will not cut down production. If the sanctions issue is settled in Iran, there will be more oil available. Whatever be the geopolitical problems, they have not impacted oil prices. As a consuming country, it augurs well for India. From a company perspective, our expenditure on crude and borrowings are low.
What has been the experience with DBT in LPG (DBTL) through the PAHAL scheme? How far it has helped in curbing diversions?
The revised scheme was launched on November 15 last year. For the initial districts, where the earlier version of DBTL was rolled out, it was implemented from November to January. From January onwards, these consumers were given a three month parking period. For the first 54 districts, effectively, the scheme was completed on March 31, 2015. For the rest of the country, the scheme got implemented from January 1, 2015 with a three-month parking period up to June. So, from July onwards the whole country is on market-determined prices without the flexibility of any parking period. When we got the customers to enroll themselves for the PAHAL scheme, around 85 per cent of the consumers had enrolled. This left the remaining 15 per cent consumers. It is possible that a part of these did not want the subsidy and did not enroll. That was a direct benefit. Second benefit is that all the cases of multiple connections or undeserved connections, if any, have been eliminated. Also, responding to the PM’s call on 27 March, we had launched the scheme of GiveitUp involving voluntary surrender of LPG subsidy. This scheme is gaining momentum.
Has there been an increase in the volume of commercial LPG sales during the last three years because diversion of domestic gas has been prevented?
There has been almost 40 per cent growth of 171,400 tonne in non-domestic LPG sales which includes bulk and auto LPG in the first quarter of this year. This was just 3.6 per cent during the same period last year and a fall of about 5-6 per cent for 2013-14 and 2012-13.
How has the deregulation of both petrol and diesel pricing worked for the company’s finances?
Petrol was decontrolled in 2010 and diesel was freed last year. The single major gain for the oil marketing companies (OMCs) is that we do not use the language of under-recoveries any longer. Earlier when we were selling them at lower than the market prices, we used to get compensation from the government. Because the difference was huge, the compensation was not scheduled in a proper way. There used to be delays in this compensation and during those periods, we had to borrow money to meet our own working capital requirements. Consequently, we had to incur interest costs. With decontrol now, we have been able to realise the value of our product.
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As an added benefit, crude oil prices have also been falling, especially since July 2014. Our overall borrowings, however, have come down. Last financial year, our interest cost saving on account of reduced borrowings was around Rs 1,600 crore. So, deregulation is a direct positive for our balance sheet and profits.
Are there plans to raise fresh money overseas or use the available window of rupee bonds?
We are able to generate resources internally for regular capital investment requirement of around Rs 15,000 crore. From time to time, whenever the need arises, we can approach the market. We did go to the market last year for our overseas acquisition. That was a syndicated loan meant to finance the acquisition of 10 per cent stake in an integrated liquefied natural gas (LNG) project under implementation in Ennore. This works out to around $4 billion investment from our side. We had made the initial payment of around $1 billion for which we took the loan.
What is the long-term capital expenditure (capex) plan IndianOil is working on?
Our 12th Plan (2012-17) capex is Rs 56,200 crore. Of this, we have already spent a little over Rs 40,000 crore. We have two more years to go for the Plan period to be over. In the current year, we plan to spend close to Rs 15,000 crore. So, we would be almost reaching the 12th Plan target. We will most likely exceed it.
How feasible is the government’s plan to introduce direct benefit transfer (DBT) mechanism in kerosene?
Kerosene subsidy targeting is a little more complex than LPG, but the government is exploring ways to ensure kerosene subsidy is also directly transferred into bank accounts. A few pilot projects have also been tried out, including one in Rajasthan. In Kotkasim in Alwar district, the subsidy was transferred into bank accounts, not electronically but through physical means. A substantial reduction in kerosene lifting was observed then. There is hope that beneficiaries benefit from this mechanism and the overall kerosene demand will come down through plugging of leakages.
How long do you think crude oil prices will remain low?
The shale revolution has changed the situation because a lot of crude used to move from the West Asia to the US, but today the US has become almost self-sufficient. Even the European markets are not doing well. So for the West Asian crude, the real market is Asia — India, China and probably Indonesia. Even in China, there is a slowdown. India has been the only bright spot, so it is an attractive market. The Organization of the Petroleum Exporting Countries has been consistent in saying that they will not cut down production. If the sanctions issue is settled in Iran, there will be more oil available. Whatever be the geopolitical problems, they have not impacted oil prices. As a consuming country, it augurs well for India. From a company perspective, our expenditure on crude and borrowings are low.
What has been the experience with DBT in LPG (DBTL) through the PAHAL scheme? How far it has helped in curbing diversions?
The revised scheme was launched on November 15 last year. For the initial districts, where the earlier version of DBTL was rolled out, it was implemented from November to January. From January onwards, these consumers were given a three month parking period. For the first 54 districts, effectively, the scheme was completed on March 31, 2015. For the rest of the country, the scheme got implemented from January 1, 2015 with a three-month parking period up to June. So, from July onwards the whole country is on market-determined prices without the flexibility of any parking period. When we got the customers to enroll themselves for the PAHAL scheme, around 85 per cent of the consumers had enrolled. This left the remaining 15 per cent consumers. It is possible that a part of these did not want the subsidy and did not enroll. That was a direct benefit. Second benefit is that all the cases of multiple connections or undeserved connections, if any, have been eliminated. Also, responding to the PM’s call on 27 March, we had launched the scheme of GiveitUp involving voluntary surrender of LPG subsidy. This scheme is gaining momentum.
Has there been an increase in the volume of commercial LPG sales during the last three years because diversion of domestic gas has been prevented?
There has been almost 40 per cent growth of 171,400 tonne in non-domestic LPG sales which includes bulk and auto LPG in the first quarter of this year. This was just 3.6 per cent during the same period last year and a fall of about 5-6 per cent for 2013-14 and 2012-13.