IOC’s Massive 22,451 Crore Quarterly Loss

by Manshu on August 10, 2012

in Economy

IOC is the biggest Indian company by sales and now it also happens to be the Indian company with the biggest quarterly loss ever. IOC declared results today and said they had incurred a loss of Rs. 22,451 crores last quarter!

This is about $4 billion on today’s exchange rate, and is a much bigger loss than the one they had last year in this quarter at Rs. 3,719 crores. In fact, their forex loss alone is Rs. 3,187 crores which is close to their entire loss last quarter in 2011.

This is really bad news, but it’s not really news in the sense that IOC had said they were looking at massive losses when the petrol price was hiked by Rs. 7.50 in May. At that time, they said that all oil companies were looking at losses of Rs. 1,86,000 crores this year and this is expected to materialize as more oil companies declare their results in the coming days.

The primary reason for IOC’s losses is because they aren’t allowed to charge as much for petrol, diesel and LPG as it costs them, and rely on government grants for the shortfall.

They didn’t get any grants at all this quarter because the government has used up all the money for this year’s grants in last year’s grants.

IOC now warns that their borrowing limit will soon be reached and after that they won’t be able to borrow money to buy crude and that really does sound like an emergency.

This story again illustrates that no matter how much you dislike petrol price hikes, there is just no way to consume something without paying for it. If you don’t pay directly, you will pay indirectly, and it is becoming increasingly hard to see why diesel subsidies continue to remain so high when oil companies as well as the government are struggling so much with their finances.

Unfortunately, another indicator that the economic situation continues to worsen.

 

{ 17 comments… read them below or add one }

Shiv Kukreja August 10, 2012 at 1:04 pm

I fail to understand why Prime Ministers, Finance Ministers & Oil Ministers of India make such noises that they are serious about controlling fiscal deficit and taking difficult decisions in the times to come. It has been months & years I’ve been waiting to see them taking such bold steps to keep India’s economic growth running at a faster pace. I think now they should make petrol, diesel, LPG & kerosene free for all so to make every Indian vote for them and ensure that they rule this country for the next 50 years also.

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Manshu August 11, 2012 at 10:13 pm

They may rule for the next 50 years, but there will be nothing left to rule at this rate.

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Shiv Kukreja August 11, 2012 at 11:06 pm

These leaders are acting so cowardly in order to save their seats that they are just not bothered in which direction India has started moving. It is shameful to see a large no. of working hours, money & resources getting wasted in parliamentary sessions fighting over the issues of corruption and then saying India’s economic growth is getting affected due to European debt problems. Why aren’t their salaries and facilities getting affected due to these problems ???

It probably brings a lot of other positives/opportunites if Europe or US are suffering, like outsourcing or other huge investments. You just do your job perfectly man and let people remember you for doing something great for the country.

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Paresh August 10, 2012 at 3:26 pm

I am doubtful of the efficiency of these companies.
Even if petrol prices raised to Rs.100/- per liter, these companies will be in the loss,forever..

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ankurm@icraindia.com August 10, 2012 at 5:09 pm

Thats the flipside of an energy/oil deficient country taking fiscally imprudent measures. It will keep buring a hole into the country’s finances. The sooner people get used to real fuel prices, the better it is for energy conservation.

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Manshu August 11, 2012 at 9:19 pm

Ankur, what is the rationale for all these diesel subsidies?

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ankurm August 11, 2012 at 11:11 pm

Diesel subsidy is meant to keep freight costs under control. Here, there is need to view OMCs and Government separate. Since, OMCs are making loss since they sell diesel/fuel below cost of production. Government could still be profiting because of taxes. Ideally, in such a scenario if OMCs have a social motive, they should not be listed, as it hurts the minority shareholder.

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piyush August 10, 2012 at 5:48 pm

@ Paresh – they are not losing money on petrol sales.. most of the losses is on diesel & lpg..

Anyways.. I have a solutions.. but that doesnt really matter cause I’m not the finance minister πŸ™‚

I think they should do a modest hike in both diesel and lpg.. like 2 rupees in diesel prices.. alongside that they should slash central taxes to that extent with the lower taxes, the retail price for diesel that oil companies would have charged in normal times comes to the hiked price (current+2)… and deregulate prices to vary fortnight to fortnight..

so with a limited hike of 2rs they would have decontrolled prices.. as it is what they earn in taxes they have to pay by support to oil companies..

Now the twist to this is that each time there are major falls in international prices like we saw in June-July.. govt could hike taxes to the extent that retail prices remain same instead of falling.. thus over a cycle of 2 yrs.. we would see atleast 4-5 such 10-20% crack in crude prices.. each time govt could hike taxes.. and bring it back to line with what it is currently..

so the immediate fiscal deficit won’t be reduced dramatically.. but we would have solved two things.. have a decontrolled price without increasing prices dramatically.. plus there would be a clear roadmap to have lower fiscal deficit two years down the line.. that too would be taken very positively by rating agencies and central bank..

over time hike in prices of fuel will eat into consumers budget and their ability to spend money elsewhere.. thereby helping to slow down inflation.. but also hitting consumption a little bit.. but there’s not other solution… but first we must cut the NREGS – inflation negative feedback loop that is a death spiral..

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Paresh August 10, 2012 at 9:38 pm

Thanks for your mention.
What I mean was that these companies will always at shortfall….I mentioned petrol price just as indicative.

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Manshu August 11, 2012 at 9:16 pm

Why do you feel they are inefficient? Which company can make money with their hands tied behind their back?

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Manshu August 11, 2012 at 9:18 pm

The under recovery in diesel is Rs. 14 right? How would just slashing the price by Rs. 2 decontrol it?

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piyush August 11, 2012 at 11:26 pm

a. Hike price by Rs 2-3 and cut central taxes to the extent oil companies at least break even on diesel. Rationale being that ultimately they have to reimburse losses of OMCs eventually as it is.

b. Then to get revenues back to level what it was over a period of time, instead of cutting diesel prices each time there is a large 15-20% correction in prices, govt just hikes tax rates so that there is no decrease in price. Over 2-3 yrs this should bring taxes back to level what they are now currently.

c. This would mean effectively prices of diesel would see a steady and slow hike over 2-3 yrs, fiscal affects of this is entirely neutralized after 3 yrs.. and oil prices will be finally deregulated

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Shiv Kukreja August 12, 2012 at 12:38 am
abc August 30, 2012 at 11:50 am

I have been working for IOC for last 3 yrs now .. and the outlook is quite bleak in the company not because of the losses but the bcoz of circle of putting blames on each others inefficiencies. Believe me there have been quite few good proposals given to top ppl/ ministers for capping of subsidy in both Diesel and LPG .But they all end up same with some Ministers being outraged with the idea of price rise and bringing everything to standstill and this has been going on fr last few yrs . We need ppl in power who can debate properly and bring out some results ..not just rubbish talk . till dat time these Oil companies will have such results..

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xyz September 14, 2012 at 11:50 am

it is absolutely false that oil companies are in loss. do you know the salary of an ONGC employee. employees of oil companies are highest paid salaried class in India. after retirement they get the highest pension. how they show that they are in loss. if they feel that they are really in loss, they shoud reduce the salary of thei employees just by Re 1 .

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Shiv Kukreja September 14, 2012 at 7:42 pm

What kind of logic is this? You mean if the employees of Kingfisher Airlines are getting good salaries, then the company cannot suffer losses??

If the cost of crude oil goes up in the international markets from where Indian companies import oil and at the same time, if the govt. does not allow these cos. to raise their selling prices, then losses are bound to happen.

What will happen if the salary of their employees is reduced by Re 1 ?? πŸ™‚

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ajith September 22, 2012 at 2:26 am

I dont understand . As per IOC’s annual report, their profit after tax in 2011-12 is Rs. 3,955 Crores!
http://www.moneycontrol.com/annual-report/indianoilcorporation/directors-report/IOC#IOC

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