The delay in government compensation for the regulated sale of fuels has prompted the country's largest oil marketer Indian Oil Corporation to seek crude oil from Oil and Natural Gas Corporation and Oil India Ltd on credit.
The leeway is being sought for as long as the government does not transfer subsidy.
The government-owned company has an unmet loss of nearly Rs 15,000 crore (Rs 150 billion).
After enjoying a discount of about 33 per cent from ONGC and OIL, IndianOil's monthly bill on crude purchases from these two companies is around Rs 1,267 crore and Rs 417 crore, respectively.
A senior company official said, "We have requested the upstream companies to defer payment as long as the government does not compensate us. We have also informed the petroleum ministry there is no other option but to defer payments."
IndianOil has also sought the Reserve Bank of India's help in opening a direct dollar purchase window for crude payments.
It has written a letter to the ministry of petroleum and natural gas in this respect.
The move follows a setback to the petroleum company from a depreciating rupee.
IndianOil, along with other refiners, is dependent on imported crude oil for 80 per cent of the requirement. IndianOil alone buys crude oil worth $4 billion every month.
The company sells diesel, kerosene and LPG at government-regulated prices, lower than the market-linked price.
The consequent loss is compensated through a mix of discounts on crude oil from ONGC and OIL and cash compensation from the government.
The company is losing Rs 6.61 on every litre of diesel and Rs 24.63 on kerosene while the loss on a domestic LPG cylinder is Rs 270 crore (Rs 2.7 billion).
T K Ananth Kumar, director (finance), OIL, said the company was willing to defer payments as requested by IndianOil but the deferment should attract interest.
He said the company already gave a discount of 33 per cent on crude oil to IndianOil.
Since government compensation comes with a lag, the company has to borrow.
From a level of Rs 52,734 crore (Rs 527.34 billion) at the end of March this year, the company's borrowing has crossed Rs 78,000 crore (Rs 780 billion) because of continued losses and delayed compensation.
Global crude oil prices have been rising since the end of 2010 and crossed $100 a barrel in the beginning of 2011.
However, the prices of select petroleum products have not moved in tandem with international crude prices, resulting in under-recoveries on the sale of these products and low internal accruals.
Apprehending an increase in borrowing beyond the Rs 80,000-crore (Rs 800-billion) limit, the company has initiated the process to increase the limit by Rs 30,000 crore (Rs 300 billion).
In the first quarter ended June 30, the company incurred a net loss of Rs 3,718 crore (Rs 37.18 billion) after absorbing a loss of Rs 7,673 crore (Rs 76.73 billion).
Analysts expect the company to post a net loss when it declares its Q2 result next month if the loss of Rs 7,400 crore (Rs 74 billion) is not compensated by the government.
