The Hindu : Business : Non-revision of oil prices may hit IOC profit

Online edition of India's National Newspaper
Wednesday, Jun 09, 2004

Business

Business

Non-revision of oil prices may hit IOC profit

By Sushma Ramachandran

NEW DELHI, JUNE 8. The profit of Indian Oil Corporation (IOC) is likely to be affected this year unless a decision to revise the prices of petroleum products is taken soon. The company has already made losses of Rs. 504 crores on petrol and diesel as well as Rs. 1,639 crores on kerosene and LPG from April to June 15 in the current fiscal owing to skyrocketing crude oil prices in the world markets.

Disclosing the company's financial results for 2003-04 today, the IOC Chairman, M. S. Ramachandran, indicated that the high profit during the year might not be repeated in the current fiscal unless some formula was evolved for the price revision. The company had made a profit after tax (PAT) of Rs. 7,005 crores in 2003-04, a rise of 15 per cent over Rs. 6,115 crores in the previous year.

Addressing a press conference, he said last year's higher profit was largely due to better refining margins, increased use of cheaper crudes and processing improvements. Refining margins [the difference between the pricing of products and levels of crude oil prices] had improved largely due to the steep hike in world crude oil prices.

This advantage, he conceded, ended as soon as the Government stopped any further revision in domestic prices in January this year.

Looking forward to the new pricing formula being evolved by the Government, he said the proposal for fixing a price band with the possibility of automatic revision would be acceptable to the oil companies. "We are happy as long as we have reasonable margins,'' he said. As for the proposal to cut import duties, he felt this was more feasible. He pointed out that ad valorem duties on crude oil meant that the revenue inflow would rise enormously along with the hardening of world prices. Besides, many other countries had price stabilisation funds meant to cushion consumers from volatility of world prices.

Mr. Ramachandran felt deregulation did not mean `no regulation' especially in a developing country with large pockets of poverty. At the same time, he noted that oil companies would not be able to sustain operations without some price increase.

"We expect something to happen on June 15,'' he said referring to the possibility of a modest price hike as well as the arrangement made last year whereby the upstream oil companies helped to bear the burden of subsidy on kerosene and LPG. The Oil and Natural Gas Corporation (ONGC) and GAIL India Limited had been directed to bear part of the losses along with the oil marketing companies.

The IOC chief denied, however, that the oil companies were levying Rs. 2 a litre on petrol and diesel on account of customs duty without any justification as these products were not being imported at present. Stressing that the IOC's books were inspected by various audits including that of parliamentary committees, he said the Petroleum Ministry would not allow it to make undue profit. He noted that naphtha and fuel oil prices charged by the IOC did not include the customs duty component though the company paid 10 per cent on crude oil from which these industrial products were extracted.

On the financial performance, he said the sales turnover for 2003-4 reached a record high of Rs. 130,203 crores, an rise of 9 per cent compared to Rs. 119,884 crores in the previous year.

The board recommended a final dividend of 160 per cent while the interim dividend was of 50 per cent, bringing the total to 210 per cent as against 193 per cent in 2002-03. The company's earning per share (EPS) stands at Rs. 59.97, a rise of 15 per cent.

Regarding new business areas, he said the company board had approved the acquisition of a medium sized exploration and production company and was now waiting for the Government clearance.

In the petrochemicals sector where the company has drawn up an ambitious Rs. 30,000 crore strategy based on captive streams available from its refineries, it has decided to set up a separate petrochemicals division to implement these plans.

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