IOC, BPCL, HPCL hit by rising working capital needs that have led to a combined borrowing of Rs 110,000 crore.
Delay in government compensation and inability to raise prices are not the only dragging factors for oil marketing companies (OMCs) — Indian Oil, Bharat Petroleum and Hindustan Petroleum. With higher borrowings and firm interest rates, their interest cost is expected to rise sharply this financial year and cause losses.
For Indian Oil, the interest cost for this financial year is expected to touch an all-time high of Rs 5,000 crore, compared to Rs 2,670 crore last year. In the first six months, the interest burden stood at Rs 2,521 crore. (The oil subsidy sharing pain)
“While the borrowing is high this year, the interest rates are also firm. Against an average rate of 5.66 per cent during the last financial year, we are paying a rate of 7.25 per cent this year,” said P K Goyal, director (finance), Indian Oil, the country’s biggest OMC.
Delayed government compensation and rising working capital requirement have led to a combined borrowing of around Rs 110,000 crore for the three companies. The interest cost of these companies is expected to be Rs 8,000 crore, against Rs 4,654 crore last year. Currently, the OMCs incur an under-recovery of Rs 388 crore a day. An increase in the prices of controlled products — diesel, kerosene and domestic liquefied petroleum gas — is unlikely for the next two months, due to the forthcoming Assembly polls in five states.
The state-owned OMCs, theoretically free to decide petrol prices, chose not to pass a Rs 1.80 a litre loss this fortnight. The per litre loss on diesel and kerosene are Rs 11.30 and Rs 28.50, respectively, while the loss on domestic cooking gas is Rs 326 a cylinder. The high losses are on account of lack of price revision, firm crude oil prices and a weakening rupee.
This year, the gross oil subsidy is expected to be at an all-time high of Rs 140,000 crore (compared to Rs 78,190 crore last year). A third of this will be borne by upstream oil companies Oil and Natural Gas Corporation and Oil India. Last year, the three marketing companies together showed Rs 10,531 crore in profits even after absorbing an under-recovery of Rs 6,893 crore. However, Goyal said the companies were in no position to absorb any loss this year.
In the first half of this financial year, the three companies made huge losses due to inadequate government compensation. These firms posted Rs 23,510 crore in loses. They had an uncompensated loss of Rs 13,270 crore. Considering an under-recovery of Rs 33,000 crore in third quarter and another Rs 40,000 crore in fourth quarter, the government needs to fork out Rs 60,000 crore before these companies declare their annual numbers in April-May.
“The mounting under-recoveries may force the OMCs into the red for the first time in their history, as the shrinking profits from their refining business will not be enough to offset the marketing losses. The gross refining margins of the OMCs fell to $2.2 per barrel in the first half, from $4.1 per barrel in the first half of 2010-11. Hence, timely support from the government will be critical for the OMCs to manage their liquidity,” said Sridhar Chandrasekhar, research head at Crisil.
