Hike diesel, gas prices else we keep borrowing Rs 8k cr a month: Butola
New Delhi   17-May-2011

Mr. R S Butola,
Chairman,
Indian Oil Corporation Ltd.
Soaring crude oil prices and government control on fuel prices have severely strained the finances of state-run oil marketing companies, including IndianOil, or IOC. The company needs a net profit of about Rs 15,000 crore a year to fund its capital expenditure. But low state-set prices and high taxes force the company to depend on government subsidies to remain profitable. IOC's recently-appointed Chairman Ranbir Singh Butola says if the government does not raise prices of diesel, cooking gas and kerosene, IOC will have to keep borrowing Rs 8,000 crore a month for its operations. In his first interview after taking over as chairman about two months ago, Butola shares his vision and strategies with Rajeev Jayaswal and Himangshu Watts. Excerpts:

The finance ministry has announced a final compensation of Rs 20,000 crore in the fourth quarter of 2010-11, against the oil ministry's demand for Rs 26,000 crore, to the three state-run oil firms for selling diesel, kerosene and cooking gas below market rates. Does it meet your expectations?

Total under-recovery of the three oil PSUs for 2010-11 is Rs 78,190 crore. The government has already paid a compensation of Rs 21,000 crore and one third compensation is expected from the upstream sector. IOC had already received Rs 11,662 crore from the government and Rs 8,692 crore from the upstream companies. IOC absorbed Rs 5,722 in the last three quarters. The unmet gap for IOC in the forth quarter (2010-11) was Rs 17,000 crore. We wanted it to be fully compensated for a decent profit.

Global crude oil prices are in the range of $114-120 a barrel, but the government is not allowing state-run fuel retailers such as IOC to raise prices of diesel, kerosene and cooking gas. How will it impact IOC?

We have posted a profit of Rs 3,541 crore in first three quarters. We wanted to be fully compensated for the last quarter due to unprecedented jump is global crude oil prices. In the last 45 days, our borrowings have jumped to Rs 67,600 crore from Rs 56,000 cr on April 29. Unless government raises prices of sensitive fuel products, we would be requiring loans of Rs 7,000 crore to Rs 8,000 crore every month to run our operations.

But petrol prices have recently been raised by Rs 5 a litre. This would provide some relief?

Certainly. But impact of petrol price hike is not very significant. Even the hike was partial. Its price was raised by Rs 5 when the desired price increase was Rs 10.5 a litre. With this hike, our borrowing will be about Rs 400-450 crore less. The borrowings will decline significantly when diesel rates will be revised. If rates are not revised soon, bulk borrowings by us would raise cost of borrowing, liquidity will be strained and other sectors will also face problems. Company's financial position will be strained unless it makes an ideal profit around Rs 13,000 crore-Rs 15,000 crore in the next 5-6 years to be able to make capital investment to meet country's growing fuel requirements.

What are your immediate tasks as chairman of India's biggest refinery company?

Immediately after joining IOC I visited Paradeep where we are constructing a greenfield refinery. We have limited time till March 2012 for availing the income tax benefits. Our effort is to complete the first phase by then. There are some challenges related to setting up a power plant by BHEL . We would also increase efficiency of our existing refineries. We are able to process high-sulphur crude. We will improve our ability to process heavy crude. I have already asked to start work on this as new oil finds in the world are of heavy crude.

Where do you see growth for the company?

Petrochem and speciality chemicals are growth areas. Though they are cyclic in nature, they are not regulated. We also plan to enter into merchant power business. We have about 2.5 MT pet coke which can be used in power generation. We can have a separate strategic business units (SBUs) for new businesses. We are also open for partnership where the partner can bring value.

Gas is the fuel for future. What is your plan for the gas business?

We have already decided to enter into gas business. Our liquid business will be significantly replaced by gas. Gujarat is one such example where gas has replaced fuel oil or diesel. This is a global trend. That is why oil giants like Exxon and BP have gone for gas business.