IOC forced to review investment plans
New Delhi: Feeling the strain on its finances due to mounting under-recoveries from below the cost sale of key petroleum products like petrol, diesel, domestic and PDS kerosene, the country's largest refining and marketing company Indian Oil Corporation (IOC) has been forced to review its future investment plans. The company has decided to prioritise new projects. It would take up only those projects where investment requirement is relatively small and rate of returns are high. Meanwhile, there is fear that the company might have to dilute equity in its upcoming Paradeep Refinery and Petrochemical project in Orissa at a less-than-premium price, in desperation to raise funds.
IOC is looking at an internal rate of return (IRR) of 15-16% from new projects. "We have identified some petrochemical projects for review. If the investment requirement is high, we will not take up project," BM Bansal said in his first media briefing after taking over as IOC's acting chairman. He, however, declined to name these projects. IOC has targeted an investment of Rs 43,000 crore in the current 11th Plan. The company has offered 5% equity to Saudi Aramco in the Paradeep project. "We have a plan to offer equity at a premium later. But if financial position does not allow, we might have to offload it sooner," Bansal said. The company is implementing the Paradeep project with an estimated investment of Rs 29,777 crore. It cannot delay the project as it has already tied up significant investment there. The company is also implementing fuel quality upgradation projects at its various refineries to comply with Euro III and Euro IV norms for petrol and diesel from April 1. The company cannot delay these projects as they are unavoidable for compliance with the mandatory schedule.
The company has planned to foray into nuclear power generation business as part of its strategy to become an integrated energy company. Despite fund crunch, it is not in favouring of going slow on the new venture because of lucrative IRR from the business. So IOC's new petrochemical projects, which are still at the stage of conceptualisation, will bear the brunt. The company's outstanding debt has reached the high level of Rs 50,000 crore as IOC resorted to heavy market borrowing in the current fiscal to meet capital expenditure requirement of its ongoing projects pending disbursement of compensation by the government toward under-recoveries incurred by the company. If the company keeps on borrowing, its interest burden would also rise commensurately, impacting future cash flows. The government has said that it would compensate the public sector oil marketing companies' (OMCs) under-recoveries in cash and not issue any oil bonds. However, finance minister Pranab Mukherjee has not made adequate provision in the Budget 2010-11 to cover OMCs' under-recoveries.
.........Noor Mohammad / The Financial Express
