Indian Oil may face cash crunch

NEW DELHI — Indian Oil Corporation, forced by the government to sell fuel below cost, may face a cash crunch as the nation’s biggest refiner expects oil prices to remain high.

By (Bloomberg)

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Published: Tue 15 Apr 2008, 9:45 AM

Last updated: Sun 5 Apr 2015, 11:39 AM

The refiner is losing Rs3.2 billion ($80 million) a day selling fuels below cost and may not be able to meet routine expenses, Chairman Sarthak Behuria said in New Delhi yesterday. Daily losses were as much as Rs1.8 billion, he said last month.

India caps retail fuel prices to control inflation and raised them in February for the first time since June 2006. The increase was aimed at easing the strain on the finances of refiners, which get bonds as partial compensation for the losses.

Refiners will get Rs234.6 billion of bonds for the year that ended March 31, Priya Ranjan Dasmunsi, parliamentary affairs minister, said on October 11. They received Rs241.2 billion of bonds in the previous fiscal year. The bonds aren’t enough to compensate refiners, Behuria said. Indian Oil sells the bonds at a 9 to 10 per cent discount, he said.

Borrowings by the refiner are expected to rise to as much as Rs30 billion a month, the chairman said. The company’s debt as of March 31 stood at Rs340 billion, he said. That exceeds the Rs320 billion estimated by the company in January.

Crude oil prices may remain high this year on supply constraints, Behuria said.

Upgrading refineries: Indian Oil plans to spend Rs75 billion this year on expanding and upgrading its plants in Gujarat state, Panipat in the north of the country and Haldia in the east, Behuria said. The Koyali refinery in Gujarat is Indian Oil’s biggest, with a capacity of 13.7 million metric tonnes a year.

The refiner plans to spend Rs90 billion in the two years ended on December 2009 to upgrade plants and make cleaner gasoline and diesel, B.N. Bankapur, director for refineries, said in February.

Indian Oil earned $7.7 a barrel from processing oil into fuels in the three months ended March 31, Behuria said yesterday. Profit from processing had more than doubled to a “near record” $10.43 a barrel in the third quarter from $4.50 a barrel a year earlier. The company earned $9 from every barrel of crude oil it processed in the nine months ended December, Behuria said in January.

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