State-owned Indian Oil Corporation sees under-recovery of Rs 5700 crore if the cap on subsidised cooking gas cylinders is raised to 12 from 9 currently, the company’s Director, Finance PK Goyal told CNBC-TV18 Monday.
Oil minister Veerappa Moily on Friday had said that the cap would be raised. This followed Congress leader Rahul Gandhi’s speech at the AICC session in which he proposed that the government should raise the cap.
Also read: Subsidised LPG cylinder cap to be increased to 12/yr: Govt
According to Goyal, 97.2 percent of the users of LPG consume 12 cylinder annually. He added that so far there has been no communication from the oil ministry on increasing the cap.
Goyal said if the number of subsidised cylinders were to be raised, there would be no impact on the profit and loss account since the under recovery would be compensated by the government.
However, the move would impact working capital requirements of the company, Goyal said.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: The big news that hit us on Friday evening is that the subsidised number of LPG cylinders is going to be increased to 12, only the final order is awaited. What is your sense? How much might that mean in terms of outgo for you or less than in terms of income?
A: The present nine cylinders covers roughly 89.5 percent of the population and with 12 cylinders which government’s intention to do at subsidized rate, the total population of LPG cylinder consumers will be 97.2 percent. So, more or less it will be around 100 percent people will be covered through this subsidised cylinder. However, with nine to 12 cylinders, at Rs 400 per cylinder under recovery, the under recovery increases roughly by Rs 3300 crore. As per today’s price, roughly Rs 700 per cylinder, the under recovery will increase roughly Rs 5700 crore.
Q: So that will mean higher working capital cost for you because the amount will come to you only in the next quarter?
A: This under recovery will be for the full year but balance two months the impact will be there on the working capital.
Q: Can you quantify that?
A: It will depend upon when the order will come. It is very difficult to calculate but total under recoveries for the industry at this rate will increase by Rs 5,700 per year.
Q: Any idea on when the compensation will come in. Will it be in the next quarter or will it be after the fiscal ends?
A: We got the compensation up to second quarter and for third quarter we have already taken up the matter with our ministry.
Q: When will the Q3 compensation will come because now you know the number?
A: We have not received any communication in this regard from the government.
Q: You said Rs 5,700 crore but I am assuming that entire portion will be reimbursed to you - so in that case you are looking at either the upstream or the government to take this burden of Rs 5,700 crore?
A: That the government has to decide. We want compensation either from upstream or from government. So, the government has to decide on this.
Q: But even this part is not clear that IOC and other oil marketing companies will be reimbursed in full because that has been the case so far?
A: Certainly, we will be getting 100 percent compensation so the government has to compensate this.
Q: Your notional profit from the free cylinders now falls, isn’t it. You will expect an impact on your profit and loss (P&L) in the Q4. In Q3 you had the advantage of a fairly high price for the unsubsidised cylinders. How will that portion work in the Q4? A similar amount of profit you expect?
A: That is at the market rate and there is difference between the market rate and the subsidised cylinders which will be compensated by us by the government, so we are going to get from the government only and that is not going to impact our P&L account.
Q: Since the crossholding of IOC and Oil and Natural Gas Corporation (ONGC) and Oil India has been approved, that 10 percent stake sale – will it be split equally between ONGC and Oil India, something that ONGC had alerted as well earlier?
A: The diesel board and ministry have to decide what will be the allocation of this 10 percent equity.
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