Trembling Rupee, rising crude price and oil companies

Crude, rupee double whammy hits oil companies

The fear within oil industry circles is that if the status quo persists over the next six months, there will be serious liquidity issues which could affect daily operations.
Mumbai, Dec. 14: Oil companies are wilting under the double whammy of the weakening rupee and high crude prices. It is just not the losses on sale of subsidised fuels which are an area of concern. Combined borrowings of IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are rapidly inching towards Rs 140,000 crore. At this rate, they could even touch Rs 160,000 crore by the end of this fiscal.
“What is especially worrying is the complete sense of inaction by the Government. With Parliament in a permanent state of disarray, we are expected to fend for ourselves in these difficult times,” an oil sector official told Business Line. Things have come to such a head that the companies are believed to be in no mood to comply with advance tax payments or the mandatory interim dividend to the Government, their owner and majority shareholder. “How can we possibly be expected to cough up money when there are no profits to show?” the official asked.
The fear within oil industry circles is that if the status quo persists over the next six months, there will be serious liquidity issues which could affect daily operations. In the process, bigger and more critical investments relating to infrastructure will be put on hold. This is happening at a time when the estimated spend of IOC, BPCL and HPCL over the next four years is nearly Rs 200,000 crore.
The other concern for the refining trio relates to policymaking, which has literally screeched to a complete halt. Nobody within the Government has a clue on what to do at a time when the oil companies are facing their worst-ever crisis in recent times. “All we can do is to borrow more and more because we have no idea if we will get any compensation for losses incurred. The interest burden is gradually killing us in the process,” an executive said. In contrast, 2008-09 almost seems sedate though this period is better remembered as the worst year for the oil industry when crude touched $147 a barrel. The rupee was not in the best of health either except that this state of affairs did not last too long. During the latter part of the year, crude prices started falling and the rupee settled to a more comfortable mid-40s (to the dollar) level.
Crude prices
However, this time around, crude prices have been constantly over the $100/bbl-mark and there is nothing to suggest that they will fall in the coming months. “Unless the Government comes with a cohesive pricing policy for diesel and cooking gas, our goose is cooked,” the executive said. And while it is the refiners who are taking the heat, observers believe it will not be too long before this malaise spreads to the upstream oil companies too. “If the Government does not do its bit in making good the losses of the refiners, ONGC will be soaked dry instead. It happened last year and will be repeated this time too,” they say. Should this happen, ONGC's Rs 12,000 crore FPO (follow-on public offer) will end up being in cold storage.

...Murali Gopalan ...from the pages of HINUD BUSINESS LINE newspaper.