Indian Oil's biggest ever loss of Rs7,486 cr in July-September

The country's largest fuel retailer Indian Oil Corp today registered its biggest ever quarterly loss of Rs7,485.55 crore in the July-September period and warned of supply disruptions if the government fails to compensate the company for selling fuels below cost.

The net loss of Rs7,485.55 crore for the second quarter of the fiscal was the biggest quarterly loss in the history of a listed public sector firm and was in sharp contrast to the net profit of Rs5,293.95 crore it earned in the year-ago period, Indian Oil Corp (IOC) chairman RS Butola told reporters in Delhi.

"We have not been compensated for selling diesel, domestic LPG and kerosene at cost lower than market price. As a result, we have to borrow heavily to meet our day-to-day expenses, including buying crude oil," he said.

IOC's borrowings have touched a whopping Rs73,296 crore and its debt-equity ratio worsened to 1.66:1 from 0.95:1 as on March 31.

"At this rate, no bank will be willing to lend us beyond December. We will not be able to pay for crude oil we import and thus we will have to shut some refineries which would result in disruption of fuel supplies," he said.

The government meets at least half of the revenue that state-run fuel retailers lose on selling diesel, domestic LPG and kerosene at below market price. However, it has given only Rs15,000 crore against the Rs64,900 crore that retailers have lost on fuel sales in the first half of the this fiscal.

"We will review our capex plans in end-December or the first week of January, and if our borrowing continues to remain high, we will cut our capex plan," IOC director, finance, PK Goyal said. IOC had planned a capital expenditure of Rs14,800 crore for 2011-12 fiscal.

Butola said losses on fuel sales widened as crude oil gained and rupee fell against the US dollar.

"This has been an unusual year that witnessed significant price upheaval and rupee depreciation," he said. "Never before have we witnessed this kind of quarterly losses."

Together with Rs3,719 crore loss in the first quarter, IOC has seen the worst ever net loss in the first half of current fiscal.

IOC lost Rs11,757 crore on selling diesel, domestic LPG and kerosene below cost in the second quarter. Of this, it had to absorb Rs7,837 crore after accounting for dole-out of Rs4,300 crore from upstream firms like ONGC.

Besides, it lost Rs1,134 crore on selling petrol below cost in this fiscal and was forced to raise prices by Rs1.80 a litre last week after rupee depreciated by over Rs3 to Rs49.40 to a US dollar.

Delays in getting compensation from the government and widening losses have forced IOC to borrow more money for crude oil purchases and general corporate requirements. Its interest costs nearly tripled to Rs1,484 crore in Q2, he said.

The government had in June last year freed petrol prices but rates of diesel, domestic LPG and kerosene, which account for three-fourth of all petroleum products used in the country, are still regulated.

Butola said the company would not raise petrol prices in future if the government agrees to compensate the loss it may incur on selling the fuel below its market cost.

Rupee falling further because of credit downgrade of Indian banks today, may lead to oil companies incurring losses even on petrol and as a general rule the retail prices should go up as the fuel is decontrolled.