Indian Oil Corp have said its oil import costs may climb as much as 70%
India’s biggest refiner, Indian Oil Corp, have said its oil import costs may climb as much as 70% to $45 billion this year, adding to increased borrowings and revenue losses from selling fuel below cost.
The New Delhi-based refiner is paying $110 to $115 for every barrel of oil it buys from overseas, compared with an average of $79 a barrel in the year that ended in March, Serangulam V. Narasimhan, director of finance, said in a telephone interview.
“Internal resources are not adequate because of pricing controls,'' Narasimhan said in a telephone interview today. "Borrowing is by default. We have $3 billion of foreign-currency borrowings in short-term loans of about six months to a year.''
About 40 percent of refining capacity in Asia's third-biggest energy consumer is controlled by Indian Oil, who expect average crude oil prices at $90 to $100 a barrel by March 2009.
“This will obviously put pressure on working capital needs of the company, considering it has to sell fuels below cost,'' said Ballabh Modani, Mumbai-based analyst at Enam Securities Pvt. “Rising costs and lack of liquidity will delay projects and force refiners to cut future investments.''
India, Asia's third largest-economy, paid an average $8 billion a month this year for oil imports, up from $5.5 billion in 2007, according to data compiled by Bloomberg.
Indian Oil and its state-run counterparts may lose an estimated 1.75 trillion rupees ($37 billion) selling fuels at government-fixed prices that are lower than the cost of buying and processing crude, India's Oil Secretary R.S. Pandey said in an interview on Sept. 25.
The refiner is waiting for 210 billion rupees of government bonds for the six months to June 2008, he said. State-run refiners in India are issued bonds as partial compensation for selling fuels below cost.
"Our revenue losses are touching 2.1 billion rupees ($45 million) a day,'' Narasimhan said yesterday. "And rising borrowings are putting pressure'' on working capital needs. He didn't say how much borrowings rose.
Oil prices in New York rose to a record $147.27 a barrel in July and have since declined 35 percent amid concern a global economic slowdown will cut demand.
Crude oil was trading at $95.50 a barrel at 9:39 a.m. in Mumbai, having dropped more than $10 yesterday after the U.S. House of Representatives failed to pass a $700 billion financial rescue plan, prompting a rout in equities and commodities.
“It was expected that if the bailout package is approved, prices will go up to $110-112-a-barrel levels and if not, prices were to crash,'' Narasimhan said. "The logic was that if money is pumped in, the economy would get back on track and things would improve. I think the volatility between $90 and $105 will continue.''
In India, the drop in oil prices has been offset by the fall in the rupee. The rupee slumped to a two-year low against the dollar yesterday and is the second-worst performer this year among the 10 most-active Asian currencies excluding the yen.
Indian Oil doesn't plan to increase the volume of imports until additional refining capacity becomes operational in the second half of 2009, Narasimhan said. The expansion of the refinery at Panipat in north India by 3 million metric tons a year is scheduled for completion next year.
The refiner imported 45.73 million tons of crude oil in the last financial year, paying $26 billion, he said. The company processed 47.4 million tons of fuel and sold 59.29 million tons in the year to March 31.
Crude oil imports for India rose 9 percent in the last financial year as domestic oil production stagnated at 34 million tons, Indian Oil chairman Sarthak Behuria told shareholders on Sept. 19.
High crude prices and under-recoveries are "a burden'' and the refiner has ``pruned'' investment plans, Behuria said. Indian Oil's net loss of revenue from selling fuels below cost was 97.7 billion rupees in the last financial year, he said.