State-owned oil marketing companies will find it difficult to raise money and finance their purchase of crude oil if the issue of under-recoveries is not addressed, Indian Oil Corporation Chairman R.S. Butola said on Tuesday.
Expressing a hope that that such a situation would not arise, he said there was a limit to which they could borrow. A lot depended on the ratings assigned to their bonds. “Borrowings are also based on prudential banking norms. While this can, perhaps, go for sometime, it cannot go on for long,” Mr.Butola said during an interaction with presspersons after the annual general meeting of Chennai Petroleum Corporation (CPCL) here.
CPCL is a group company of IOC, and Mr. Butola is its Chairman.
The companies, he said, had to pay in cash for the crude they purchased. Thus, “if we are not able to raise money and finance our purchases, we [will] have difficulties in sourcing,” he said, adding IOC borrowings were approximately Rs.90,000 crore. While under-recoveries of the company, at current prices, were likely to be over Rs.1.09 lakh crore this fiscal, for the industry they would be around Rs.2.05 lakh crore.
“ There is a limit how much this can be financed. There is a felt need to look into the [fuel] pricing structure, and we hope the government will take [this] into consideration.” The under-recoveries for the companies rose from Rs.75,000 crore in 2010-11 and Rs.1.38 lakh crore last fiscal.
Queried if production would be affected, Mr.Butola said: “We have a pledged line available for sometime, and hope by then, we will get some respite. We are hoping that the first quarter under recovery will be sanctioned by the government. Every month there is a deficit in our cash flows and once prices are looked into, we get some respite by way support from the government. Then, our financial position will improve, and to an extent, we can reduce our borrowings and continue to import.”
On diesel price deregulation, he said it was for the government to take a callIn 2010 it was agreed that it would be deregulated over a period of time. “And that sense has not been withdrawn so far, it is only the question of timing,” Mr.Butola said.To a query on the pricing mechanism, he said the petroleum products were internationally traded and there was a very transparent and liquid mechanism to price them. The crude price accounts for 92-95 per cent production cost for the companies.