OMCs cut crude oil inventory to save on working capital

Hit by higher borrowings, interest costs and delayed government compensation, the three state-owned oil marketing companies (OMCs) are cutting crude oil inventories.

Indian Oil Corporation (IOC), the country’s biggest refining and oil marketing company, has brought down its crude inventory from 6.5 million tonnes about a month before to 5.7 mt. It is working to reduce this to 5.4 mt.

R K Ghosh, director (refineries) at IOC, said: “The effort has reduced the company’s working capital requirement and lowered the scope of a forex loss in case crude oil moves downwards.” IOC processes around 160,000 tonnes of crude oil daily at its 10 refineries put together. A stock of 5.7 mt is sufficient to cater to 35 days’ requirement.

The decrease of 800,000 tonnes in crude inventory has helped the company bring down its working capital requirement by around Rs 3,200 crore, considering a price of Rs 40,000 for a tonne.

When it succeeds in bringing inventory down to 5.4 mt, the decrease will be to the tune of Rs 4,400 crore. This translates into an annual saving on interest outgo of Rs 450-500 crore.

The company has borrowings of Rs 73,000 crore on its books. Interest expenditure for the quarter ended September 30 rose nearly three-fold to Rs 1,484 crore, as the company’s borrowings increased sharply. It reported a net loss of Rs 7,485 crore for the quarter.

At present, it is losing Rs 8.58 on retail sale of a litre of diesel, Rs 25.66 per litre on kerosene and Rs 260.50 on a cooking gas cylinder. Though crude oil price has remained stable at $110/barrel for some months, the depreciation of 12 per cent in the rupee against the dollar has put pressure on finances of companies.

Indian refineries’ total crude inventory consists of three parts. The first is non-pumping crude, which remains at the bottom of tanks. Second, inventory which takes care of requirements during transit time, till the next crude tanker is delivered for processing. Third, the stock required to take care of unforeseen factors like a delay in tanker arrival, port conjunction, time preparation after receipt into refinery tanks, etc. Of these three, only the last factor is controllable and this is being reduced by companies.

Hindustan Petroleum Corporation also brought down the combined inventory at its two refineries from around 1.1 million tonnes to 850,000 tonnes by tinkering with the emergency crude inventory. The company processes 49,000 tonnes of crude daily at its two refineries. “This has reduced our working capital requirement by Rs 1,000 crore and will help us save nearly Rs 100 crore interest annually,” said a company official.