Fourth quarter may push Indian Oil Corporation into red

Indian Oil Corporation, the country’s largest petroleum retailer, may take a hit of nearly Rs 6,000 crore due to controlled prices of cooking fuel during the final quarter, company officials said on Friday. 

The scenario is likely to force the firm, which has remained profitable during the first nine months, to post losses amounting to thousands of crores of rupees during the final quarter, nearly wiping out the Rs 4,664 crore that it has earned during the first three quarters.

“If the government does not increase the support, and oil prices remain where they are, $75-80 per barrel, we are looking at an unmet shortfall of around Rs 12,000 crore for the full year,” IOC chairman Sarthak Behuria said.

IOC suffered a total cooking fuel related under-recovery of Rs 12,400 crore during the first three quarters, including Rs 5,300 crore during the third quarter. As a result, it was about to post a pre-tax loss of Rs 4,000 crore for the December quarter, but a last-minute bailout by the finance ministry helped it show a pre-tax profit of Rs 517 crore.

The finance ministry had, in a letter two weeks ago, promised to pay Rs 12,000 crore to three oil retailers, IOC, Bharat Petroleum and Hindustan Petroleum. IOC got the lion’s Rs 7,100 crore, out of which it used Rs 4,500 crore to move from a pre-tax loss of Rs 4,000 crore to a profit of Rs 518 crore.

However, the firm is likely to have no such luxury in the final quarter, while matters are likely to get worse. During the third quarter, it averaged a purchase price of $75.15 per barrel of crude. This is likely to move up by around $3 to $5 per barrel if the price so far is any indication.

Each dollar added to the price of crude increases IOC’s cooking-fuel related under-recoveries by Rs 300-350 crore per quarter.

As such, the company is looking at a total under-recovery of Rs 6,000 crore from kerosene and cooking gas, but has only Rs 2,100 crore left from the finance ministry grant to cushion itself.

Behuria, however, refused to speculate whether the unmet under-recovery of Rs 4,000 crore will translate into an equally big hit at the bottomline. “We are looking at a lot of big numbers here. So it would not be wise to predict (the bottomline),” he said, referring to items like mark-to-market losses on government bonds and forex and inventory gains during the December quarter.

IOC, for example, took a huge hit of Rs 1,866 crore during the December quarter due to the devaluation of oil bonds of face value of Rs 24,000 crore that it holds. The fuel retailer said it has already liquidated Rs 15,000 crore of such bonds so far.

For the third quarter, IOC posted a net profit of Rs 697 crore against the Rs 2,969 crore it posted during the same period of the previous year. Turnover was 6% higher at Rs 70,415 crore.
Meanwhile, a senior government official said on Friday that upstream companies—Oil and Natural Gas Corp Ltd, Oil India Ltd, and GAIL may be asked to share “a portion” of the losses on cooking fuels.

So far, these companies had to bear only the burden of revenue losses on automobile fuels.