New Delhi, Nov. 7: Petroleum minister Jaipal Reddy has demanded from the finance ministry an early compensation for PSU oil retailers who are selling fuel below costs and whose borrowings till September have touched a staggering Rs 130,000 crore because of under-recoveries.
A senior oil ministry official said Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd were facing a crisis situation.
"They have an unprecedented level of borrowings of Rs 129,989 crore to meet the working capital and dollar requirements to pay for crude import," the official said.
The country imports 80 per cent of its crude requirements.
The three firms had a combined borrowing of Rs 96,727 crore in the last fiscal.
"If their financial health deteriorates on account of the price under-recoveries, their ability to discharge their assigned task of supplying the entire country with petroleum products will suffer," Reddy said.
The oil ministry official said, "The oil PSUs will soon find it difficult to get loans from Indian banks, let alone foreign banks. The companies were borrowing heavily to meet even working capital requirements as their selling price could not meet even operating expenses," he said.
IOC's debt-equity ratio as on March 31 stood at 0.95:1, that of BPCL at 1.35:1 and of HPCL at 1.99:1. This is likely to widen this fiscal with rising borrowings and is expected to put pressure on future investments in oil and gas exploration and petrochemical projects.
The finance ministry in its attempt to show lower fiscal deficit holds back cash, which adds to the revenue loss for oil firms as they have to borrow at increasingly higher interest rates, officials said.
The oil ministry has asked for a cash subsidy of over Rs 28,000 crore from the finance ministry to partially compensate oil PSUs for losses they suffered on selling fuel below cost in the first half of this fiscal.
They said the finance ministry must put in place a system to pay the subsidy on a monthly basis so that the cash flows were not hit.
"Oil marketing companies have reported an under-recovery (revenue loss) of Rs 21,374 crore in July-September," oil secretary G.C. Chaturvedi said. Of this, one-third, or Rs 7,124 crore, will be shouldered by upstream firms such as Oil and Natural Gas Corporation and Oil India Ltd.
"For the remaining Rs 14,250 crore, we have asked the finance ministry to give cash subsidy," he said.
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