IOC set to revive expansion plans on issue proceeds

Indian Oil Corporation (IOC), the country’s biggest oil marketing company, plans to use the public offer funds for expansions of its petrochemical and LNG business that were put on hold due to fund crunch. The company aims to raise Rs 10,000 crore through an issue of 10 per cent fresh equity in the last quarter of the current financial year.

The response for the issue that will see the government also offloading its 10 per cent stake in the company will depend on diesel price decontrol and a long-term government formula for compensating the losses on kerosene and domestic LPG.

IOC Chairman and Managing Director B M Bansal told Business Standard that clarity should come before the company goes on roadshows.

The company was forced to put on hold projects like petrochemical plants at Paradip in Orissa and at Koyali refinery in Gujarat as well as an LNG terminal at Ennore in Tamil Nadu due to stressed finances caused by losses due to the sale of petrol, diesel, LPG and kerosene at government-controlled prices.

Bansal said the share sale proceeds would help IOC revive its petrochemical projects in Orissa and Gujarat, as well as a 2.5-million-tonne LNG terminal and an associated 1,000-Mw power plant in Ennore, Tamil Nadu.

The petrochemical project in Orissa was likely to cost Rs 15,000 crore, while the projects in Tamil Nadu were likely to cost Rs 8,000 crore, Bansal said. IOC has identified petrochemicals as a prime driver of future growth, and investing in projects will help the company tap rising demand for plastics and synthetic rubbers in India.

In June, the government deregulated petrol prices, which caused a Rs 3.50 per litre increase in the prices of the fuel. The companies, however, continues to incur a loss of Rs 1.70 on every litre of diesel. This is in addition to the losses from kerosene and LPG cylinders.

Bansal expressed hope that the government would in due course of time deregulate diesel prices. IOC incurred an underrecovery last quarter of about Rs 11,000 crore due to regulated sale of petrol, diesel, kerosene and LPG. Of this, a compensation of Rs 3,671 crore was received in the form of discounts from upstream oil companies, leaving the company with a loss of Rs 3,388 crore for the quarter.