The stand-alone oil marketing PSU has, otherwise, outlined other options to the petroleum ministry which include conversion of the loan granted by the Oil Industry Development Board (OIDB) into equity and waiver of the interest on the money borrowed for its stake in the refinery.

The Rs 2,600-crore Numaligarh project is promoted by Bharat Petroleum Corporation and IBP with stakes of 32 per cent and 19 per cent each. If IBP wishes to exit the project, it remains to be seen if BPCL will be ready to buy out its equity. Current indications are that this is an unlikely possibility.

Sources have indicated that the petroleum ministry is aware of IBP's predicament and will work on the other two options - converting the OIDB loan into equity and examining the prospects of putting off the interest payment on the loan for anotherthree years. If these are not exercised quickly, the company will be hard pressed to raise funds and retain its profitability level.

The need to find a quick solution can be gauged from the fact that IBP has just not been able to mop up funds as its public issue has been put on hold for over two years now. The firm had also sought ministry nod for a Rs 382 crore rights issue which again seems improbable.

Barring dues from the OCC which run into barely Rs 200 crore, IBP is in dire need of funds for various other activities. "It is not as if it is the end of the world for the company. But it makes more sense to have a healthy balance sheet to be able to execute some vital programmes," sources said.

They said a large part of the problem will be solved if the government acts quickly on the Nitish Sengupta panel proposals which had suggested sale of 33 per cent of the Centre's equity in IBP to BPCL. The petroleum ministry is apparently of the view that there is no way it will allow IBP to sell its stakein the Numaligarh refinery.

A section of industry believes that the PSU has nothing to gain with a 19 per cent stake in a refinery which is located in the northeast. They argue that the capacity of the project at three million tonnes is also a good reason to withdraw. However, the government has accorded the Numaligarh refinery top priority and recently agreed to convert a Rs 100 crore loan into a grant.

The project could also be a viable proposition as talks are on to export 50 per cent of the produce to Bangladesh and Myanmar.

Insight

Low cash accruals a woe

With the country expected to become surplus in refined products, there is more money to be made in marketing than in production. Realising this, the IBP management has decided to reverse its earlier policy of vertical integration and concentrate entirely on improving its marketing network. The problem for the company is low internal cash accruals and constantly rising debt-equity ratio. Under the circumstances, the selling ofits stake in Numaligarh would be a much better option than conversion of the OIDB loan to equity. This would bring in much needed cash for expanding the retail chain. The problem would be to find a buyer to invest in a three million tonne refinery, which is below the minimum economic scale of six million tpa. Selling off its other loss-making businesses, such as cryogenic containers and explosives, would also help.

Manish Saxena