Food inflation falls to 7-week low of 7.61%

Will receive another Rs 13,000 crore in two tranches on July 12 and July 19.

Oil marketing companies (OMCs) have received a cash subsidy of about Rs 7,000 crore to cover losses incurred in the last quarter of 2010-11. These firms will get another Rs 13,000 crore in two tranches on July 12 and July 19.

The actual payment of cash compensation for the fourth quarter of the last financial year (already accounted in fourth quarter results) would help these firms improve liquidity and bring down borrowings to Rs 100,000 crore.

The borrowings of the three OMCs — IndianOil, Bharat Petroleum and Hindustan Petroleum — had touched a record high of around Rs 120,000 crore since May, on account of rising under-recovery, or revenue loss, from subsidised sale of three products — diesel, kerosene and domestic liquefied petroleum gas (LPG) cylinder. High borrowings at a time when interest rates have also risen by 100 basis points over the last year, have exposed these companies to high interest costs. IndianOil incurred interest costs of Rs 2,670 crore in the previous financial year and this year, the cost is likely to be even higher.(Click here for graphics)

The borrowings of Indian Oil Corporation, the country’s biggest oil marketer, had touched a record of nearly Rs 69,000 crore. “We received Rs 3,800 crore yesterday and will be getting another Rs 7,140 crore in two tranches this month,” said P K Goyal, director (finance), IndianOil. Goyal said the company’s borrowings will come down to Rs 59,000 crore by the month-end.

Bharat Petroleum and Hindustan Petroleum will also see their borrowings come down substantially this month. Hindustan Petroleum got around Rs 1,500 crore yesterday and will get another Rs 2,900 crore by the month-end.

OMCs, which import 80 per cent of their crude oil requirements, sell diesel, kerosene and LPG at government-subsidised prices, resulting in losses. These losses are usually compensated through a mix of cash subsidy from the government and discounts from upstream companies, Oil and Natural Gas Corporation and Oil India. Since the compensation comes with a lag, these companies are forced to borrow heavily for their working capital requirements.

While the release of Rs 20,000 crore will bring relief to these companies, they are concerned about the Rs 43,000-crore loss incurred during the first quarter of this financial year for which no provision has been made by the government.