Business Today

IOC seeks govt nod for Rs 11K cr reimbursement

Indian Oil Corp is banking on the reimbursement to clean up its books and show a profit for the first half of the current financial year (April- September).

S. P. S Pannu | September 28, 2010 | Updated 11:36 IST

Indian Oil Corp (IOC) is banking on an "in- principle" clearance from the finance ministry for the reimbursement of Rs 11,000 crore due from the government to clean up its books and show a profit for the first half of the current financial year (April- September).

IOC was forced to declare a loss in the first quarter (April- June) and the company's image could take a beating if the books are not cleared during the second quarter.

The issue assumes significance as it could hit investor sentiment at a time when IOC is going to the stock market with a follow-on public offering (FPO).

According to sources, the money cannot come to the company until the supplementary demand for grants is cleared by the Parliament and this can happen only when the winter session begins in November.

However, since the second quarter (July- Sept) results will be declared in October, IOC will have to show a loss for the first half of the current financial year.

IOC director (finance) S. V. Narasimhan told M AIL T ODAY that " even an in- principle approval from the finance ministry, before we declare the Q2 results, is enough for us to clean up our account books." Clearly, the issue has become more serious as the finance ministry failed to come up with a solution in the first quarter.

Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd ( HPCL), the other two public sector oil marketing companies, have also posted losses during the first quarter as the finance ministry has held back the government's share of the subsidy burden on the sale of LPG, kerosene, petrol and diesel.

The dues to the two companies would together add up to around Rs 11,000 crore during the first two quarters.

IOC chairman B.M. Bansal said the company expects to get Rs 7,000 crore as the government's share of the subsidy burden for the revenue losses during the first quarter and another Rs 4,000 crore that it expects to lose in the second quarter.

These figures have been arrived at after adjusting the one- third share of the subsidy that oil marketing companies receive from upstream oil companies Oil and Natural Gas Corp ( ONGC) and Oil India Ltd ( OIL) and gas major GAIL. With the government having allowed the oil companies to raise the prices of petrol, diesel, LPG and kerosene in June this year their financial position is much better in the second quarter.

The IOC chairman said the company is not losing money on petrol any more.

However, its revenue loss on LPG, kerosene and diesel works out to Rs 68 crore a day.

He said the current borrowings of IOC stand at around Rs 45,000 crore, which is about the same level as last year.

While the upstream oil companies are prompt in paying their share of the subsidy contribution it is the government's share that gets held up.

This also forces the oil companies to borrow money at high interest rates to run their operations as they have to import most of their crude oil requirements.

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