OREANDA-NEWS. September 9, 2011. State-run Indian Oil Corp said petrol prices need to be raised as revenue losses from selling the fuel at government controlled rates have widened more than seven-fold this month, head of finance P.K. Goyal said on Tuesday. Revenue losses on petrol sales now stand at about three rupees (6 U.S. cents) compared to about 0.41 rupees a litre in the fortnight ending Aug. 31 due to an increase in Singapore spot prices of the fuel, he said.

"There is scope to raise petrol prices," Goyal told Reuters in an interview on the sidelines of the Asia Pacific Petroleum Conference (APPEC). "In the last fortnight (ending Aug. 31), our revenue loss was 41 paise a litre. It has now risen to about three rupees."
State-run firms last raised petrol prices in mid-May by a record. The increase of 5 rupees a litre made the fuel costlier than in the world's biggest oil consumer United States, hurting local consumption. Slowing car sales in Asia's third-biggest economy has also curbed sales.

The government last year gave state-run firms permission to fix gasoline prices on their own, while retaining control over diesel, kerosene and cooking gas to protect the poor and tame stubbornly high inflation. Still, these companies need a nod from the government to increase gasoline prices.

State-run retailers get cash subsidy from the government and discount on crude and products purchased from state-run upstream firms to partly offset the losses.

REFINERY EXPANSION Indian Oil is the nation's biggest refiner controlling about a third of the 4.17 million barrels per day capacity. It is building a 300,000 bpd refinery in Paradip in Orissa. The company aims to spend 120-130 billion rupees next fiscal year on new projects, a large part of which will go toward the completion of the Paradip plant. It is expected to spend 148 billion rupees this fiscal year.

Pardip would start by June 2013 and will operate at full capacity in 2014, Goyal said. The plant will help the company meet the total demand for fuel from its own refineries. Currently, the volume of fuel it sells is higher than its refining capacity, forcing the company to buy some products from private firms such as Essar Oil and Reliance Industries Ltd.

"Presently, we are taking 5 million tonnes (annually) of fuel from private refiners," Goyal said. "After commissioning of Pardip we will stop that....we will be exporting some gasoline." For Pardip, IOC may look at buying crude from Venezuela, Mexico and Colombia, he said.

Indian Oil processes 46-47 percent of heavy crude, while the remaining is light. The company meets 75 percent of its requirement through term deals, he said. Last year, IOC exported about 4.5 million tonnes of fuel, and shipments could fall to 3.5-4 million tonnes this fiscal year as naphtha consumption at its Panipat cracker may rise.

FUEL EXPORTS "In 2012-13, exports would be about 3 million tonnes as our naphtha cracker would stabilise and operate at full capacity," he said, adding local demand for the fuel is also increasing as the economy expands. IOC's total borrowings are at about 710 billion rupees and this could rise to about 900 billion rupees by December if it did not get cash compensation from the government.

The company's board has approved raising the borrowing limit to 1.1 trillion rupees from 800 billion rupees and hopes to get shareholder approval on this by October, Goyal said. It may also raise debt, which may be a mix of local and foreign loans, in quarter ending March.