IOC refuses to pay dividend; calls for change in guidelines

8220;Even in the event the Corporation is able to post a modest profit on account of issue of additional bonds, we may not be able to declare any dividend for 2008-09 considering the high level of borrowings and huge capital expenditure,8221; it added in reply to the ministry8217;s request for dividend on December 4.

IOC paid Rs 665.81 crore in fiscal 2007-08, down from Rs 2,250.89 in 2006-07, due to high crude oil prices that it processes to produce auto and cooking fuels. Bharat Petroleum BPCL paid Rs 144.62 crore in fiscal 2008 compared to Rs 578.46 in fiscal 2007, while Hindustan Petroleum HPCL paid Rs 101.59 crore and Rs 610.8 respectively.

The three performed poorly as their under-recoveries in selling petrol, diesel, LPG and kerosene grew with the government pegging the retail prices while crude oil 8212; the raw material for these fuels 8212; climbed to record highs.

This capped the growth in dividend payout by public sector undertakings in fiscal 2008 at 1.84 per cent. With fiscal deficit likely to cross targeted levels due to the fiscal relief the government is providing to knee-jerk the slowing economy, IOC8217;s refusal 8212; likely to be aped by the other two 8212; could impart a further blow on the government8217;s revenue.

IOC said that while it suffered a net loss of Rs 6,632 crore in the first half of current fiscal, the third quarter had been marred by 8220;further appreciation of the dollar vis-agrave;-vis the rupee, inventory valuation losses due to falling crude prices and very substantial interest costs due to severe liquidity crunch caused by non-release of oil bonds8221;.

IOC said that it 8220;may not be possible8221; for it to declare any interim dividend for fiscal 2009-10 given the uncertainty in crude prices and the government8217;s policy on pricing, burden-sharing mechanism and oil bonds on one hand and high interest loss and planned capital expenditure.

It has requested that that the guidelines on October 2007 on dividend payment be reviewed. 8220;Considering the erosion in profitability and liquidity of the downstream public sector oil undertakings at large and the planned capex requirements, the 30 per cent dividend pay-out ratio guidelines for downstream oil PSUs may be reconsidered,8221; it said.

The government is working on changing the way OMCs8217; losses are shared between people, government, OMCs and the state-run upstream oil companies. It plans to lower the burden on upstream firms ONGC, Oil India Ltd and GAIL India Ltd to Rs 30,000 crore from Rs 45,000 crore and write off OMCs8217; contribution of Rs 20,000 crore as decided by the Cabinet Committee on Political Affairs last June.

The finance ministry, which issued Rs 11,975 crore bonds with 8-year maturity last month, has concurred to issue an additional Rs 32,992 crore of bonds for April-September 2008. But the delay in issue forced OMCs to borrow Rs 119,800 crore until end-October for which interest payment is estimated at Rs 8,500 crore.

WHAT IT WANTS

IOC says it will not be able to post profits unless 8220;the burden sharing mechanism is reviewed and additional bonds are issued for the third quarter of fiscal 2008-098221;

BUT, WILL IT HELP?

Even if IOC is able to post profits if additional bonds are issued, the OMC says it 8220;may not be able to declare any dividend for 2008-09 considering the high level of borrowings and huge capital expenditure8221;

A DECLINING TREND

Indian Oil paid Rs 665.81 cr in fiscal 2007-08, down from Rs 2,250.89 cr in 2006-07, due to high crude oil prices that it processes to produce auto and cooking fuels