IOC faces severe liquidity problem

Facing a working capital shortage, Indian Oil Corporation has asked the Reserve Bank of India to allow banks to increase their exposure to IOC.

IOC executives told Business Standard that the company was facing a severe liquidity problem because of mounting under-recoveries in the sale of petroleum products.

The company was pressing the government for releasing oil bonds amounting to Rs 4,200 crore but officials said this would not help ease the problem since the bonds were already reflected on the company's balance sheet as receivables.

Asked to comment on the issue, IOC Director (Finance) SV Narasimhan refused to give details but clarified that whether IOC would post profit or loss in the April-June quarter would depend on the extent to which other companies shared the burden of under-recoveries incurred by oil marketing companies.

IOC may end the quarter with a net loss of Rs 1,800 crore unless upstream firms Oil and Natural Gas Corporation, Gail India and Oil India Ltd, and private refiners Reliance and Mangalore Refinery and Petrochemicals Ltd, share some of the Rs 9,500-crore under-realisation on petrol, diesel, LPG and kerosene.

ONGC and Gail shared the subsidy burden of oil marketing companies last year. It is anticipated that a change in the sharing mechanism will take place to prevent the oil marketing companies from going into the red.

IOC is estimated to have wrapped up the quarter with a revenue loss of Rs 4,900 crore on sales of petrol, diesel, LPG and kerosene. The total revenue loss for all oil marketing companies is seen at Rs 10,000 crore for the quarter.