INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

IOC LOOSING RS 100 CR DAILY ON SALES BELOW COST OF PRODUCTION

  Indian Oil Corporation (IOC) is bleeding Rs. 100 crore daily due to the sale of petrol, diesel, LPG and kerosene below the cost of production and the proposed price hike would not be sufficient to cover its loss.

The proposed Rs. 3-4 per litre hike in auto fuels is not sufficient to cover the deficit, IOC chairman Martha Bahrain said. Petroleum minister Marla Debora is likely to meet finance minister P Chidambaram on Monday to discuss a package comprising of a moderate fuel price hike and duty cuts, to bailout public sector oil firms from estimated revenue loss of Rs. 73,500 crore in 2006-07. The company, which lost Rs. 14,011 crore in revenues during 2005-06, has projected a total under realization of Rs. 8,300 crore in the first quarter of the current financial year. Behuria said: “Petrol is being sold at a loss of Rs. 10.55 a liter, diesel at Rs. 9.88 a litre, kerosene at Rs. 16.78 per litre and LPG at a loss of Rs 120 per cylinder.”

During April-May this year, IOC lost Rs 397 crore on the sale of petrol, Rs 2,490 crore on the sale of diesel, Rs 1,754 crore on sale of kerosene and Rs 880 crore on LPG.

It is expected that the Monday meeting between Deora and Chidambaram would be followed by a meeting with the PM on Wednesday. An announcement of revised prices of petrol and diesel are expected on the same day. “There are huge under-recoveries and Rs 3-4 litre hike will certainly not be sufficient,” he said while indicating that other measures like excise duty cuts and issue of oil bonds would have to be resorted to help keep companies afloat.

IOC managed to post a net profit in 2005-06 at almost the same level as that of the previous fiscal after the government issued Rs 6,571 crore worth of oil bonds and the upstream assistance of Rs 2,666 crore received from ONGC, GAIL and OIL, he said.
IOC has seen a 2.5% decline in its sales by volume at 49.5 million metric tonnes (MMTs) in 2005-06 from 50.8 MMTs in the previous fiscal. Net profit has, however, shown a marginal growth of 0.5% from Rs 4,891.38 crore in 2004-05 to Rs 4,915.12 crore in the last fiscal. IOC's market share has also gone down to 47%. “IOC has recorded the highest turnover ever at Rs 1,83,204 crore in 2005-06. There has been a 2.5% dip in sales volumes due to the entry of new players and naphtha substitution by gas,” Behuria said.