While market borrowings of the
three public sector oil companies have touched a whopping Rs 1,30,000 crore, the finance ministry has made matters worse by delaying payments due to them for the government's share of the subsidy on petroleum products.
Senior oil industry officials are of the view that the finance ministry in its attempt to show a lower fiscal deficit holds back cash from the oil firms. However, this only adds to their loss in revenue as they have to borrow at increasingly higher interest rates.
Since the high outgo on the
subsidy for petroleum products is not shown in the Union budget, separate approval has to be obtained later from Parliament through a supplementary demand for grants, which is a very time consuming process.
"While the public sector oil companies have to run as commercial enterprises and have to pay in cash for importing crude oil at prices of $110 a barrel, the subsidy reimbursements get caught in bureaucratic red tape," a senior Indian Oil Corp (IOC) official said.
Will roll back prices if govt issues directive: Oil firms Senior IOC officials are of the view that the finance ministry must put in place a system for paying the subsidy to the oil companies every month so that the cash flows are not hit.
GOING UP IN FLAMES
- Oil industry officials say that in trying to show lower fiscal deficit finmin is holding back cash from oil firms
- This is adding to oil cos' losses as they have to borrow at increasingly higher interest rates
- IOC officials say finmin must put in place a system for paying subsidies every month
- Reimbursements from upstream oil firms ONGC and Oil India Ltd, which foot one-third of subsidy bill, come through in time
- Refining firms face trouble when oil prices in international markets shoot up as more than 75% of India's crude oil requirements are met through imports
- Interest rate burden of IOC went up by Rs 486 crore during the April-June quarter of this fiscal
- With domestic banks hiking interest rates, outgo on interest payments is expected to rise even further
- Govt's share of subsidy to oil cos for Jan-Mar qtr of 2010-11 was reimbursed only in July this year
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Upstream oil companies ONGC and Oil India Ltd (OIL), which foot roughly one-third of the petroleum products subsidy bill, are the only saving grace as their reimbursement comes through in time in the form of discounts on domestic crude sold to the public sector oil refining and marketing companies, IOC, Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL).
However, since more than 75 per cent of the country's crude oil requirement is met through imports, the refining companies have to go through a tough time when
oil prices shoot up in the international markets.
The interest rate burden of IOC had gone up by Rs 486 crore during the first quarter (April-June) of the current financial year compared with the same quarter of the previous year.
With domestic commercial banks increasing their interest rates following the monetary tightening by the RBI the outgo on interest payments is expected to go up even further.
The government's share of the subsidy to the oil companies for the January-March quarter of 2010-11 was reimbursed only in July this year.
The oil companies have been deftly managing their loan portfolio through overseas borrowings at lower rates of interest but this is not possible once borrowings shoot up beyond a point.
When any company increases its borrowing the debt: equity ratio goes up and banks starting charging higher rates for giving more loans.
Although the finance ministry has decided to reimburse Rs 15,000 crore as the government's share of the subsidy bill to OIL, BPCL and HPCL for the first quarter of the current financial year it issued only a comfort letter to these companies expressing its intent.
This enabled the oil companies to show the amounts expected from the government on their books in order to reduce their losses without actually receiving the cash.
Courtesy: Mail Today 
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