Capex might suffer on rising under-recoveries

Q&A: S K Joshi

As the government dithers on the fuel price hike, oil marketing companies struggle to manage the working capital needs on one hand while managing the demands of capital expenditure on the other. Borrowings have been on the rise, but if there is no relief, it will be difficult to raise more money, and there may be an impact on capex too, S K Joshi, director (Finance) with Bharat Petroleum Corporation (BPCL) tells Kalpana Pathak in an interview. Excerpts:

The government (Finance Ministry) issued oil bonds worth Rs 2,539 crore to BPCL recently. When do you plan to offload them?

We would like to get out of bonds as early as possible, and at an appropriate time. We regularly sell the bonds keeping in mind market conditions. This financial year, so far, BPCL has sold Rs 2,200 crore worth of bonds. Its outstanding bonds are worth Rs 7,139.13 crore.

What is the present working capital situation?

As our requirement for working capital has shot up, the borrowings will increase. Today, our borrowings stand at Rs 11,000 crore and they are likely to go up to Rs 16,000 crore by the end of the year, compared to Rs 10,000 crore last year.

Treasury operations have become complex and if the current under-recovery goes up and the subsidies persist, borrowing levels will increase significantly.

Under such conditions it will be difficult to raise more money.

Public sector banks are ready to lend. Won't you be approaching them?

We have different modes of borrowing, which are also cheaper. We are active in the Collateralised Borrowing and Lending Obligation (CBLO) market where short term money is raised.

CBLO, a product of the Clearing Corporation of India (CCIL), is a money market instrument approved by RBI through which a bank and non-banking entities can lend or borrow funds through a negotiated dealing system.

Financial entities such as mutual funds, primary dealers, banks and insurance companies are participants in the market. In 2007, the CBLO amounted to Rs 866 crore.

Do these under-recoveries impact your capex plans?

They have not done so yet. However, if the under-recoveries keep increasing, then it might have an impact.

What is the update on the Bina refinery IPO?

We plan to sell shares in a unit to partly fund our Bina refinery project.

We would raise around Rs 3,000 crore in the next four months through an initial public offer in Bharat Oman Refineries (BORL) - the SPV floated for the project.

The 6 million tonne a year plant is 40 per cent complete and contracts worth Rs 8,000 crore for supply of pipes, boilers and control panel have been awarded.