Indian Oil to raise borrowing limits by Rs 30,000 cr

Indian Oil Corporation, the country’s biggest oil refining and marketing company, plans to raise its borrowing limit by Rs 30,000 crore to Rs 110,000 crore as it apprehends borrowings to go up sharply due to high under-recovery on sales of diesel, kerosene and domestic LPG.

With continued losses, the company fears borrowings may cross the approved level of Rs 80,000 crore by December. The company, in which the government owns a 78.92 per cent stake, has initiated a process to raise its borrowing limit through a postal ballot.

The government-owned company sells diesel, kerosene and LPG at government regulated prices, is often lower than the desired market-linked price. The consequent loss is compensated through a mix of discounts on crude oil from Oil and Natural Gas Corporation and Oil India Ltd and cash compensation from the government.

Since government compensation comes with a lag, the company has to borrow. From a level of Rs 52, 734 crore at the end of March, the company’s borrowing crossed Rs 67,000 crore by June, due to non-revision of prices. In the first quarter ended June 30, the company incurred a net loss of Rs 3,718 crore.

“Global crude oil prices have been rising since the end of 2010 and crossed $100 per barrel in the beginning of the year 2011. However, the prices of select petroleum products have not moved in tandem with international crude prices resulting in under-recoveries on sale of these products by the company and low internal accruals. We apprehend that borrowings may cross the threshold limit of Rs 80,000 crore by December,” said a company official.

With volatility in crude oil prices, sustained increase in under-recoveries and time lag in receipt of cash compensation from the government, the fund requirements of the company for working capital and capital expenditure have increased substantially.

Even after the revision in prices of diesel, kerosene and LPG in June end, the company incurs a revenue loss of Rs 6.05 on every litre of diesel and Rs 23.26 on every litre of kerosene. It also loses Rs 267 on a domestic LPG cylinder. On and off, the company also incurs loss on petrol which is a deregulated product. Petrol’s loss, however, is not compensated.