IOC shelves petrochemicals project

NEW DELHI: Indian Oil Corporation (IOC), the nation’s biggest refiner has decided to shelve its plans to build a  petrochemicals plant at Paradeep in Orissa as of now, owing to doubling of the projected cost, the company’s chairman and managing director Sarthak Behuria said on Wednesday.

“We have decided to build the facility in phases, owing to the cost escalation. For the time being, we will build only the refinery at the planned facility,” Behuria told reporters at the company’s annual press conference.

The state-run company had earlier projected a cost of Rs 26,000 crore to build a refinery and a petrochemicals plant at the Paradeep Port. The revised cost estimates, however, surged to above Rs 45,000 crore.

IOC now plans to invest Rs 29,000 crore to establish the refinery alone, Behuria said. “The entire project cost has gone up due to a rise in the cost of equipment, land development, raw material, labour and other factors of production,” Indian Oil’s director, planning and business development, said.

The company has also decided to put on hold its other projects that had not started yet due to the same reasons and under-recoveries on selling petroleum products below cost.

“The Paradeep project had already begun. If we do not carry it forward, we will lose even the money already invested in the project,” Behuria said.

Earlier in the day, the company told Bombay Stock Exchange that it posted a net loss of Rs 414 crore for the fiscal fourth quarter that ended March 31, due to under-recoveries, against a net profit of Rs 1,610 crore in the same quarter previous year.

The state-run company’s revenue for the quarter was Rs 71,790 crore, up 33% from the same quarter previous year.

Indian Oil can borrow as much as Rs 55,000 crore to meet expenses, according to finance director Serangulam V Narasimhan. “Borrowing more is not sustainable,” he said.

Current borrowings amount to Rs 41,000 crore. The company needs to spend Rs 4,500 crore every month to operate its refineries, Narasimhan said. Indian Oil sold bonds worth Rs 9,780 crore at a discount of 5-6% in this financial year ended March, Narasimhan said.

The government subsidies to IOC did not seem to help much in offsetting the losses.
The international crude prices have surged to about $135 per barrel at present from about $50 per barrel a year ago.

However, Indian oil marketing companies are forced to sell petroleum products below their cost as the government caps the retail prices in order to control inflation.

The difference between the desired price and the actual retail price of petrol is as high about Rs 16-17 per litre as on May 27. The same is Rs 23-24 for a litre of diesel, Rs 28-29 for one litre of kerosene, and Rs 305-306 for one cylinder of domestic liquefied petroleum gas, Behuria said.

The government is considering various proposals to control the need to raise fuel prices as it faces general elections in the next calendar year.

a_shaleen@dnaindia.net