HPCL appeals for 10% interest rate ceiling

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Mumbai, Sep 23: Hindustran Petroleum Corporation Ltd (HPCL) has appealed to the finance ministry to issue instructions to public sector banks to put a ceiling limit of 10% interest on borrowings by HPCL. This move on the part of HPCL, along with a host of other demands, is considered a serious bid by the company to arrest its rapidly falling profitability.

Also, HPCL has demanded that the special market operations (SMO) scheme of the RBI be restarted so that oil bonds can be sold on allotment. The company has also said that purchase of oil bonds by the RBI should be at face value and not at a discount. In case the SMO scheme is not revived, said HPCL, LIC/ONGC may be requested to buy the bonds at face value.

Informed sources told FE that HPCL has appealed to the petroleum ministry to pursue its case with the finance ministry. This is because its gross under-realisation is expected to be about Rs 33,000 crore in 2008-09, more than double the amount of Rs 16,231 crore in 2007-08.

In addition, whereas the net under-recovery absorbed by HPCL for the full year of 2007-08 was Rs 3,119 crore, the figure has already reached Rs 2,757 crore in the first quarter of the current year. HPCL does not have the capacity to absorb such a huge under-recovery and is likely to incur losses during the current financial year.

“As a consequence of large under-recoveries on sale of sensitive products, our borrowing levels have increased substantially, at an alarming rate,” the company argued.

HPCL’s borrowings have gone up from Rs 2,185 crore as of March 2005 to about Rs 25,000 crore currently, a jump of more than ten times in a span of a little over three years. “We have exhausted our effective approved borrowing limits with banks,” HPCL said.