The depreciation of the rupee
has made crude oil imports costlier leading to a sharp increase in the financial burden
on public sector oil companies
Senior Bharat Petroleum officials told Mail Today
that the weakening rupee has put oil companies in deeper financial trouble as for every Rs 1 hike in the value of the dollar, the cost of producing each litre of petrol, diesel, and kerosene goes up by 83 paise and the cost of producing an LPG cylinder for domestic kitchens increases by Rs 15.40.
The value of the rupee tumbled by over Rs 3 vis-a-vis the US greenback from Rs 50.39 on March 6 to Rs 53.47 on May 3. Hindustan Petroleum director (finance) B. Mukherjee told Mail Today
that due to the weakening of the rupee, the under-recoveries of the public sector oil companies in the current fiscal (2012-13) will exceed the Rs 140,000 crore mark for the financial year ended March 31, 2012.
A petroleum ministry official said, "On an annualised basis" for each Rs 1 decline in the value of the Indian currency vis--vis the dollar, the oil marketing companies would see an increased burden of Rs 85,000 crore. The government has reimbursed only Rs 45,000 crore of the Rs 140,000 crore under-recoveries that the oil companies have to incur for 2011-12. The rest of the burden is borne by the public sector oil companies.
Upstream oil companies ONGC and the smaller Oil India Ltd which produce crude oil will be made to bear the lion's share of Rs 53,000 crore while the three oil marketing companies Indian Oil, Bharat Petroleum and Hindustan Petroleum will have to absorb the remaining burden of Rs 42,000 crore.
Crude oil accounts for about 95 per cent of the cost of producing petroleum products as a result of which the oil companies start piling up losses the moment imports turn costlier. According to petroleum ministry sources, Indian Oil, Bharat Petroleum and Hindustan Petroleum have already availed of Rs 1,30,000 crore worth of cash credit from banks as they have to import over 75 per cent of their crude oil requirement for which payments have to be made upfront in hard cash.
Increased borrowing also comes at higher interest rates as banks keep the debt: equity ratio of the company in mind when fixing the cost of loans. The oil companies have also been taking recourse to overseas loans as they carry lower rate of interest.
However, with the value of the rupee coming down sharply, the servicing of these foreign currency loans will also turn more expensive and increase the cost of operations. The finance ministry also adds to the financial woes of the oil companies by delaying payments due to them for the government's share of the subsidy on petroleum products.
Senior oil industry officials are of the view that the finance ministry in its attempt to indicate a lower fiscal deficit holds back cash from the oil companies but this only adds to their loss in revenue as they have to borrow at higher and higher interest rates.
Since the high outgo on the subsidy for petroleum products is not shown in the Union Budget, separate approval has to be obtained later from Parliament through a supplementary demand for grants, which is a very time consuming process. "While the public sector oil companies have to run as commercial enterprises and are operating with their backs to the wall, these reimbursements get caught in bureaucratic red tape," a senior official of Indian Oil said.
Courtesy: Mail Today