Refiners get the jitters as IndianOil follow-on offer is put off
New Delhi   15-Dec-2010

With IndianOil's follow-on public offering (FPO) unlikely to go through this fiscal, its refining counterparts are now worried about getting a timely compensation package from the Centre for fuel losses.

Officials of Hindustan Petroleum Corporation and Bharat Petroleum Corporation told Business Line that it is now a ‘virtual certainty' that no money will come in till May when they are due to wrap up their accounts for this fiscal.

No clear-cut formula

“The delay in IOC's FPO sends a clear signal that the Government does not have a clue about either a compensation formula or a fuel price hike. In the process, our liquidity position will only get costlier and tighter,” an oil sector executive said.

This lack of clarity has prompted the Centre to defer the IOC exercise instead of risking investor apathy to the Rs 20,000-crore issue. From the oil major's viewpoint, this is a big blow since it would have helped finance its ambitious Paradip refinery scheduled for commissioning soon. “It is not the most pleasant situation for a company whose turnover is Rs 3 lakh crore but still has to scrounge for money,” sources said.

The absence of a clear-cut compensation formula should also be an area of concern to Oil and Natural Gas Corporation whose FPO is going as scheduled in the fourth quarter of this fiscal. Though ONGC is perceived to be better off (since it gets international prices for its crude oil), it still ends up bearing a third of the refiners' subsidy burden. And with higher crude oil prices, the company will cough up more as in 2008-09 when its outgo was nearly Rs 30,000 crore.

Diesel, biggest concern

Diesel is the biggest worry for the refining trio with losses amounting to nearly Rs 4.80 a litre on the fuel. What is even more alarming is that its use extends to a whole lot of non-automotive applications. “Diesel consumption has been on the rise and every extra litre sold is pushing us even deeper into the red,” an oil industry official said.

It now remains to be seen if the Centre will have the courage to hike diesel prices even marginally given its potential to stoke inflation. There is really no alternative now unless the Finance Ministry squares up a large chunk of the fuel losses, something that it is loathe contemplating.

IOC, HPCL and BPCL are losing nearly Rs 2 on petrol too which has been deemed a deregulated fuel. Despite this, they still have not initiated a price hike when logic demands that this is the need of the hour. “By the end of the day, we still need to get the go-ahead from the Government and have to grin and bear it till then,” the official added.