“Ministry In Agreement With Concerns On Indian Oil OFS Timing” – R S Butola, Chairman, IOC

If the Chairman of Indian Oil Corporation, R S Butola, is to be believed, the oil major’s much awaited Rs 4000 crore offer for sale (OFS) issue is all set to get delayed. In an exclusive discussion with DSIJ on the sidelines of the National Energy Conservation Awards function held in New Delhi on December 16, 2013, Butola said, “Regarding IOC’s disinvestment, we have updated the Ministry of Petroleum and Natural Gas in the month of October itself about the timing not being appropriate for the issue. I think now the Ministry also shares our view”. This OFS, which was slated to come in December, is expected to be delayed now. However, Butola clarified that the final decision has to be taken by the government, as it is selling a 10% stake, and the company does not have any role to play in this regard.

As for what would be an appropriate timing for the issue, the Chairman commented, “As the markets are also concerned with the uncertainty around the impact of subsidy payouts on IOC as per the report of the committee headed by Kirit Parikh, it won’t be appropriate to have this OFS till some clarity comes in on this front”.

We quizzed Butola about whether the inclination to postpone the OFS followed the lukewarm response of foreign investors seen during recent road shows in the Gulf. Here, he said that the company did organise road shows in Abu Dhabi and Dubai, but it wasn’t solely for the OFS but for some other technical factors as well. Thus, he says, it would not be right to say that it has got a tepid response. It is important to note that the CMP of IOC’s stock is Rs 197, almost 48% down from its 52-week high of Rs 375 on January 18.

Regarding the subsidy burden on the company, the Chairman said that the oil subsidy burden was Rs 1.61 lakh crore in the last year and this is expected to come in be lower at around Rs 1.40 lakh crore in the current fiscal. In such a situation, IOC’s share of the under-recovery would be around Rs 74000-75000 crore, which will be met by cash subsidy payment by the government and upstream companies’ contribution towards the oil subsidy burden.

“The main problem for IOC is that there is always some delay in payment of cash subsidy by the government, and thus, the company has to take loans for incurring its expenses. Interest payout on this loan is a big burden on us”, explained Butola. As regards the present under-recoveries on petroleum products Butola said, “It is true that we are losing some amount at the current prices. However, during our recent fortnightly review meeting, we decided not to go for an increase in prices, as we thought we can postpone it for some more time considering international crude oil prices”.

In another major event regarding the Paradip refining facility of IOC, he said that earlier there were some problems and delays in laying the pipeline for the facility due to unavailability of environmental clearances, but now, the government has deliberated on the matter and given clearances to the company. “This is really positive and we will commence the work now. The pipeline is expected to be completed by 2020-21”, Butola informed.