The petroleum ministry has sought from the finance ministry immediate release of R13,600 crore towards oil subsidy for the first half of the current financial year, and additional subsidy for the third quarter, before oil marketing companies (OMCs) announce their quarterly results. The idea is to prevent these companies from reporting big losses.
?We have requested the finance ministry to give a comfort letter to the companies on an urgent basis; otherwise, the companies are going to post record losses for the third quarter,? said a top oil ministry official on the condition of anonymity. The finance ministry had recently provided R28,500 crore to oil marketing companies as compensation for the first half of the fiscal. However, the unmet subsidy demand is still at Rs.13,600 crore.
The largest state-run oil marketing company, Indian Oil Corporation, is likely to lose R21,000- 22,000 crore in revenues during the quarter ending December 31. The under-recoveries for the three OMCs are expected to be close to R41,000 crore.
Industry experts believe that if the assurance letter does not come from the government during the next few days, the company will report its highest-ever quarterly loss, beating the earlier record-loss that it reported during the first quarter.
The company fears that in such an event, its credit rating will be changed to negative and lack of support from the government will impact its capital expenditure plans. ?We are sort of just pulling forward and it is not a healthy situation for us. Our debt-equity ratio has gone up significantly,? R S Butola, IOC chairman told FE recently.
Despite the implementation of market-determined pricing, OMCs have been making revisions to the price of petrol in a guarded manner, absorbing the losses themselves. Together, they absorbed around R10,045 crore in under-recoveries on account of petrol sales alone since de-regulation.
With the government?s compensation for subsidised sale of fuel not forthcoming, state-run oil firms have been heavily borrowing from banks to pay for their crude oil imports. IOC?s current borrowings stand at R98,100 crore and are nearing the threshold limit of around R1,10,000 crore. Its borrowings stood at R75,000 crore at the end of 2011-12. In 2010-11, the interest cost was R2,670 crore, but it rose to R5,600 crore in 2011-12.