The Telegraph
Since 1st March, 1999
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Subsidies eat into IOC fortunes

New Delhi, June 24: Indian Oil Corporation (IOC) has taken a hit of around Rs 1,000 crore during the first quarter of the current fiscal as it is not being reimbursed for selling LPG and kerosene at a subsidised price.

The net profit of the Fortune-500 company for the year ended March 31, 2003, soared to Rs 6,115 crore which is more than twice the net profit of Rs 2,885 crore clocked in 2001-02.

The profits of the oil companies have been growing at a healthy rate. Therefore, the government thinks that they can bear the burden of the subsidy. The collective subsidy bill for LPG and kerosene which the public sector oil companies had to foot in 2002-03 was to the tune of Rs 5,000 crore.

Sources say that during April and May, the subsidy on LPG was over Rs 100 per cylinder while that on kerosene exceeded Rs 2 per litre. In June, international prices of the two commodities fell, bringing the subsidy on LPG down to Rs 52 per cylinder while that of kerosene fell to Rs 1.25 per litre.

The government has not allowed any increase in the prices of these two fuels as it would erode the vote bank of the ruling party. However, the government does not have enough funds to provide for the full subsidy bill either. The public sector oil companies are being forced to bear this burden.

The profits of the oil companies have grown largely due to the higher refining margins. Since the refineries are paid the international market price by the marketing companies even of the same group, the gross refining margins have gone up since April 1, 2002, when the administered price mechanism was dismantled.

IOC chairman M. S. Ramachandran said that the gross refining margin for the year ended March 31, 2003, was over $ 4 per barrel compared with around $ 2 per barrel for the previous year. During the first quarter of the current fiscal, the refining margin is working out to around $ 3.5 per barrel.

He also disclosed that the company plans to invest Rs 24,000 crore during the Tenth Plan (2002-07) mainly in diversification projects and to create more refining capacity.

IOC is implementing a master plan to emerge as the second largest player in petrochemicals in the country, he said. This would entail an investment of Rs 15,000 crore in the first phase aimed at vertical integration with its core refining business and utilising the streams available at its various refineries.

VRS plan

The government today approved the proposals of ONGC and IOC to offer voluntary retirement to their surplus staff. “The VRS would help the two PSUs right-size themselves in the era of competition and cost cutting,” petroleum minister Ram Naik said.

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