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Indian Oil gets Lankan price prick

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By S.P.S. PANNU in Delhi
  • Published 25.12.05

New Delhi, Dec. 25: The Sri Lankan government is forcing Indian Oil Corporation (IOC) to sell petrol and diesel in the Emerald Island at prices lower than international market rates. As a result, the company is facing under-recoveries of $65 million during the current fiscal.

The Sri Lankan government would eventually pay the amount, a senior IOC official told The Telegraph. “It is something like the Indian situation where the government is issuing oil bonds for the under-recoveries of oil companies,” he added.

However, petroleum ministry officials are concerned as the arrears that have piled up are impacting the liquidity of IOC. “It is one thing to make Indian oil companies bear the burden of selling petroleum products at a lower price than international market rates in our own country, but quite another to make them shoulder huge under-recoveries for another nation,” a senior official pointed out.

Of the total outstanding amount of $72 million, the Sri Lankan government has paid only $7 million, sources said.

IOC has emerged as a significant player in Sri Lanka by taking over around 120 petrol pumps from the Ceylon Petroleum Corporation. IOC sources the petroleum products from its Chennai refinery to feed these retail filling stations, most of which are located in and around Colombo.

These pumps have increased exports of petroleum products to the neighbouring country.

IOC had offloaded a 25 per cent stake of its subsidiary, Lanka IOC, through a successful initial public offering last year that was subscribed more than five times. Each Rs 10 share was priced at a premium of Rs 24 to 27 per share. The total value of the IPO was worth $34.3 million.

IOC wanted to make the ownership of the company more broadbased with the inclusion of Sri Lankan shareholders, as it felt this would help the business operations in the long run.

The oil company had to delay the floating of the IPO as around $5 million was stuck with the Sri Lankan government at the time.

IOC’s foray into the Emerald Island forms part of India’s economic diplomacy and is a spillover of Rajiv Gandhi’s Sri Lanka pact.

IOC also exports 30,000 tonnes of diesel and 10,000 tonnes of aviation turbine fuel a month to Sri Lanka under a government-to-government term contract.

The Indian oil company plans to increase these exports to 1.5 million tonnes in the current financial year.

As part of its Lankan venture, IOC has also modernised the China Bay tank farm at Trincomalee. The tank, which can be used to store petroleum products, is from the World War II era and has been upgraded to handle growing volumes in the long run.