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Price rise, duty cuts to help companies reduce borrowings

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Ajay Modi New Delhi

The price increase of three controlled petroleum products — diesel, kerosene and domestic LPG cylinder — will improve the cash flows of the oil marketing companies (OMCs) and help them reduce their monthly borrowings by around Rs 5,000 crore.

The borrowings of the three OMCs — IndianOil, Bharat Petroleum and Hindustan Petroleum — had touched a record high of Rs 120,000 crore since May, on account of rising under-recoveries or revenue loss from subsidised sale of these products. 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. In the current year, the cost is likely to be higher.

 

The price rise of Rs 3 per litre in diesel, Rs 2 per litre in kerosene and Rs 50 per cylinder of LPG will improve the cash flow of country’s biggest oil marketer IndianOil by Rs 26,000 crore during the remaining three quarters of the financial year. “Without this increase, we would have been borrowing Rs 6,000 crore every month. Now, we need to borrow Rs 3,000 crore every month,” said P K Goyal, director (finance), IndianOil. The company, however, will still be left with a gigantic under-recovery of Rs 68,000 crore.

Bharat Petroleum will now need to borrow Rs 1,300 crore every month, instead of the earlier Rs 2,300 crore, said Director (Finance) S K Joshi. According to Joshi, the company’s under-recovery will come down by Rs 11,000 crore to Rs 30,000 crore. Similar benefits will come to Hindustan Petroleum, as well.

These three companies together will still incur an under-recovery of Rs 121,000 crore. OMCs, which import 80 per cent of their crude oil requirements sell diesel, kerosene and 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.

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First Published: Jun 26 2011 | 12:01 AM IST

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