Borrowings of OMCs cross Rs 1 lakh cr

The government indecisiveness on petroleum price rise, coupled with late release of cash subsidy, has sent the borrowings of three government-controlled oil marketing companies to an all-time high of around Rs 118,000 crore (Rs 1,180 billion).

Though crude oil prices have not reached the level of 2008, when they climbed to a record level of $147 a barrel before crashing, the current high borrowings are primarily due to revenue loss on diesel, kerosene and LPG remaining at high levels from the beginning of 2011-12.

Indian Oil Corporation's borrowings crossed Rs 68,000 crore (Rs 680 billion) in the third week of May and stood at Rs 68,482 crore (Rs 684.82 billion) on June 6, Chairman and Managing Director R S Butola said. "It had touched Rs 67,000 crore (Rs 670 billion) in 2008.

The borrowings may come down if the government releases around Rs 11,000 crore that we have to get as subsidy compensation for the fourth quarter ending March 2011," said director (finance) P K Goyal.

Besides, IndianOil will get around Rs 3,000 crore (Rs 30 billion) as additional compensation from upstream (oil and gas producing companies) companies.

The other oil marketing companies - Hindustan Petroleum Corporation and Bharat Petroleum Corporation - have borrowings of Rs 25,000 crore (Rs 250 billion) each, which, while being lower than the 2008

number, are significantly high.

High borrowings at a time when interest rates have also risen by 100 basis points over the last year, have exposed the companies to high interest costs.

"IndianOil incurred interest costs of Rs 2,670 crore (Rs 26.70 billion) in the previous financial year and in the current year the costs will be certainly more," said Goyal.

The high borrowing has led to a skewed debt-equity ratio of 1.24:1 for IndianOil. The biggest marketer of petroleum product has a target to keep it at 1:1.

Butola said the company was nearing its borrowing limits with the banks but added that the government and the Reserve Bank of India would not allow the marketing companies to face liquidity problems.

"If price is not revised, we will have to continue borrowing Rs 5,000-6,000 crore (Rs 50-60 billion) more every month," Butola said.

OMCs, which import 80 per cent of their crude oil requirements sell diesel, kerosene and liquefied petroleum gas (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.