Borrowing costs have become a big burden
New Delhi   21-Dec-2012

The public sector Indian Oil Corporation (IOC) has constantly seen an erosion In profitability for the past few years while the rising under-recoveries has left the entity with virtually no cash to meet its mammoth investment needs. Adding to the company's woes is the staggered nature of subsidy dtsbursal from the government, forcing the company to borrow heavily at a time when interest rates are high. The company is surviving on borrowed funds that are also reaching a threshold fixed by the company. In an interview with Subhash Narayan & Prashant Mukherjec, lOC chairman and managing director TH.S Butola said that the company would need to register a profit of at least 14,000-15,000 crore annually to meet is very basic needs of operations and investments and would need additional subsidy support soon.

In the current global environment, how do you sec refining margins shaping up?

Worldwide refinery margins are underpressure.In India also it hasmoved up and down during the year. While in the first quarter of current year the margins were significantly low, they picked up during the second quarter butsubsequentlytheyhaveagainstart- eddeclining. Dueto thecrisisin Europe and US, the oil consumption has declined sharply in those countries. It is only in India and' China that the demand has seen a growth. The oil consumption is directly linked to the GDP growth. Normally, In India if the GDP grows at 6%, the industry grows at 4%. Since the overall GDPis slowing down, the sector is getting affected and refrn- ingmarginshave shrunk.

The other reason is that the crude oil prices are very volatile, but the product prices do not go in tandem with the crude movement.If the crude prices goes up and product priccs do not increase, we landuphuyingathighercost. Our refming margin is hardly about 14 cents dueto so many factors. To improve refining margins wearealsobuyingcer- tain grade of crude that is available at relatively chcaper price in the market, we have started buying from Latin America, Brazil and Mexico. If you look at our physical performance, our throughput is very high, distillate yield is high and the energy consumption is much better (than others). The losses are mainly on account of the under-re- coveries on the sale of products including petrol whose pricing has been "deregulated" by the government,

With large amount of uncovered under recoveries on sale of petroleum products, how is the company meeting its Investment needs?

We have borrowed money from the market to meet our basic operational needs. Our current borrowings are to the tune of 98,100 crore and we are Hearing our threshold borrowing limit of around l, 10,000 crore. Our unmet sub- sidies (after the recently announced government subsidy support for HI period) for the first half of the year stands at? 13,300 crore and there is no clarity if this amount would be provided to the company (in this fiscal).

The interest on borrowings are significant and all these borrowings are for financing our under-recoveries, During the year 2010-11, our interest cost was T2.600 crore and in 201M2, it went up to ?5,(300 crore. This year again it will in- creaseby another 3,000 crore this high interest cost is a high burden on us. We do not have the profitability that could sustain such high levels of interest burden.

What would he the ideal method you would prefer for your compensation from the government?

Even if the government reimburses us on account of under-recoverics in MI, thehigh interest on borrowings will continue to stare on us, apart from the losses (being incurred) on account of sale of petrol and LPG at bolow cost. In future, we hope that the government allows to reviseprices truly