Motorists first to panic as Indian Oil rations fuel

29 May 2008

New Delhi: India's largest petroleum refiner and oil marketing company, Indian Oil Corporation (IOC) has decided to ration the sale of petrol, diesel and liquefied petroleum gas (LPG) cylinders, saying it can no longer afford to absorb the rising losses arising from under recoveries of petroleum products. Bharat Petroleum Corp. Ltd (BPCL) has already started a somewhat similar rationing exercise, having restricted sales subject to availability. (See: Subsidies driving top oil companies bankrupt)

Currently, IOC loses Rs300 crore each day on account of subsidised sales of 65 per cent of its products, which sell below market prices. Petrol is sold at a loss of Rs16.33, diesel at a loss of Rs23.49, and kerosene at a loss of Rs28.72 per litre. LPG cylinders, which are the mainstay of cooking fuel in India, are sold at a subsidy of Rs305.90 per cylinder. (See: Indian Oil sees red as daily losses mount to Rs320 crore)

IOC chairman Sarthak Behuria said that the oil marketer is facing an acute liquidity crunch, which has left it with no option but to stall the implementation of all new projects. Moreover, he said that rising crude oil prices and no counterbalancing change in the retail prices of fuel, IOC would run out of money by September end, and may even have to convert its capital assets to generate liquidity.

The move is widely expected to generate panic among consumers. (See: PSU oil marketing companies propose fuel rationing, halt to new LPG connections) As a measure of last resort, IOC could look at selling its stake in oil and gas company ONGC and Gas Authority of India Ltd. (GAIL). By then, IOC would have completely used up its borrowing limits, which has risen from Rs28,000 crore to Rs38,000 crore during the last fiscal. IOC continues to borrow at the rate of Rs2,000 crore to fund its working capital.

With the oil marketing companies running out of money, the availability of fuel in the domestic retail market is sure to be impacted. Behuria has said that IOC would not import fuel, specially diesel, to meet domestic demand, and would continue its refining activities, using whatever little money it had to buy crude. IOC controls 40 per cent of the national refining capacity.

He dded that IOC could sustain a domestic diesel demand growth of up to 10-12 per cent. However, he made it clear that the current growth at around 22 per cent was absolutely unsustainable.