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An open letter to the chairman of Indian Oil Corporation

August 14, 2012 12:08 IST

Sudhir Bisht urges R S Butola, chairman of Indian Oil Corporation, to take up cudgels on behalf of the shareholding public so that IOC remains a 'profit-making' Fortune 500 company.

Shri R.S.Butola,
Chairman, Indian Oil Corporation Limited
SCOPE Complex, New Delhi, Bharat.

Sub: Anguished cry at IOC losses and a few suggestions

Dear Mr Chairman Sir,

Greetings from a citizen journalist to the chairman of India's Fortune 500 list's top company.

It is with a sense of dismay that I read that Indian Oil has reported a first quarter PBT (profit-before-tax) loss of Rs 22,450 crore (Rs 224.5 billion).

Needless to say that when the PBT is negative, there is no question of PAT (profit-after-tax).

The unaudited report on your website also suggests out of the above mentioned total loss, Rs 17,485 crore (Rs 174.85 billion) is due to diesel and cooking fuels being sold below the cost of goods. We also see that the government hasn't sanctioned any budgetary provision to mitigate this loss.

Rs 3,187 crore (Rs 31.87 billion) loss is attributed to the foreign exchange loss. In addition, Rs 1,849 crore (Rs 18.49 billion) loss is attributed to delay in receipt of compensation from the Government of India.

While there is also a mention of huge inventory valuation loss, we will not get into that at this point in time. We can expect a detailed clarification on this in the days to come.

I have sympathy for your company for the Rs 3,187 crore loss on account of forex loss.  We all know that the dollar is marching ahead for reasons that America can't explain and the rupee is depreciating fast for reasons which India can't fathom!

Now let me turn my attention to the Rs 17,485 crore loss due to the fact that the government arm-twisted you to sell diesel and cooking fuels at prices which were much lower than the cost price.

If you, Mr Chairman, represent Indian Oil, which is a legal business entity, you have no business NOT to shout at the government which is bent on turning your company sick in the short run.

But we find that you (as also your counterparts in BPCL and HPCL) continue to make only polite noises against the government. If the government were forcing a Reliance or an Essar to sell these products at a loss, do you think Messrs. Ambani and Ruia would have kept quiet?

We don't find you even lodging an angry protest with the ministry. As the guardian of all shareholders (including share holders from the public) what steps have you taken to protect our investments which are under threat from the largest shareholder - the Government of India?

On the other hand, if you have taken the position that you represent an Oil PSU and the joint secretary level officials will decide what is best for your company then why are you sending alarms in the market which seem to suggest that since there is no budgetary support for under-pricing diesel and cooking fuels, the unrealised subsidy would be shown as loss in this year's financial statement?

Did you explore if there is any accounting procedure for terming this unrealised subsidy as a possible receivable?

The loss of Rs 1,849 crore attributable to delay in receipt of compensation from government of India is also something which alarms us. The government, encouraged by extremely decent, non dissenting chief executives like you, will continue to take your corporation for a ride, if you don't show some sense of boil and anger at such delays which leave a gaping hole in your pocket.

Mr Chairman Sir, I have highest personal respect for you and I have highest loyalty for a grand PSU like Indian Oil Corporation. Some of the finest thinkers and the bravest doers work in Indian Oil. This PSU has been at the forefront of public service during the times of national crises and that is why I am constrained to give some suggestions to this mighty company which itself is facing a financial crisis today. I hope that you will see the spirit which roots for this great corporation:

1.      Delay paying Dividend to the ministry: Indian Oil religiously pays its final dividend in the month of May. In addition it keeps on paying the interim dividend even before the financial year comes to an end. I know that though you have shown a loss in this quarter, by the end of this year, you will show some profits at least. Can you, Mr Chairman Sir, delay paying the final dividend by one year.  I know that the joint and the sdditional secretaries will call but I challenge you to stand firm and delay the dividend payment by one year. The interest earned by way of late payment of dividend will give you substantial savings.

Let me admit here that by getting delayed dividend, the shareholders among the general public would also be aggrieved but they will still support you since they will know that your tactics are aimed at the overall good of the corporation.

2.      Delay as much as possible paying the Customs and Excise Duty: In 2010-11 the oil PSUs paid Rs 76,547 crore (Rs 765.47 billion) in excise duties and Rs 26,070 crore (Rs 260.7 billion) in customs duties. I know that if IOC chairman takes the lead and the CMDs of BPCL (Bharat Petroleum Corporation) and HPCL (Hindustan Petroleum Corporation) join him, then you can bargain with the government very well.

You can tell the FinMin officials that unless they have a way of making budgetary provisions for paying you for the under-recoveries of losses made on diesel, kerosene and LPG sales and until the subsidies are paid, you will be 'forced' to delay payment against customs and excise duties. I know that it may be tough to delay the customs duties since port clearances would be involved but you can certainly delay the excise duty. Remember if you (the three oil PSUs) delay paying excise duty by one year, you save Rs 7,654 crore (Rs 76.54 billion) as interest earned (minimum at 10 per cent and as per very crude conservative calculation)

3.      Find ways and means of raising equity: Your corporation's finance cost in the first quarter is Rs 1,849 crore (Rs 18.49 billion). This is 77 per cent higher than last year same period, although the income from operations is not more than 6 per cent higher in Q1 this year against same period last year.

One is aware that the interest costs have gone up but not so much that this would warrant 77 per cent upward revision in finance cost. May be I missed something somewhere but is it time to fight cash-starvation with some equity injection. Not the best time for going to the market, did I hear? Well this is just a suggestion. As a former chief of a much, much, much smaller company, I know that if you can replace debt with equity, nothing like it. You lose a bit of freedom of course, but do you have it in the first place? The question is that will your largest shareholder, the Government of India allow you to do so? You have to fight it out Sir.

4.      Improving your Petrochemicals business: Amidst all the criticism of the government, I overlooked the fact that in the petrochemical segment your revenue in Q1 is Rs 3,207 crore (Rs 32.07 billion). This is over 80 per cent up from last year same period. However what takes away a bit of sheen from this improved showing in sales is the fact that here also your company has incurred losses. It may be observed here that the losses have reduced in Q1, 2012 greatly as compared to the losses made in the same period last year. I am confident that under your overall stewardship the petrochemicals unit will thrive and provide succor to the corporation

I am sure Mr Chairman that you will take up cudgels on behalf of the shareholding public. This group may hold just 21 per cent of the total shares of your corporation but it you are the chairman of this group too. We want you to fight to let Indian Oil remain a 'profit-making' Fortune 500 company.

Thanks and regards,

Sudhir Bisht

Sudhir Bisht frequently contributes to as a freelance columnist. He is the CEO of CLAIRVOYANT Consultants and has years of experience in Oil & Gas industry. Feedback welcome at

Photograph: Danish Siddiqui/Reuters

Sudhir Bisht