MUMBAI, February 19: The Indian Oil Corporation (IOC) has earmarked Rs 3,200 crore as its capital expenditure during 1998-99, up from Rs 2,300 crore in the current financial year. The figure is also twice the amount for 1996-97 which was Rs 1,600 crore.The funds will be used for various projects in different stages of implementation. Sources say that the more crucial ones identified are the Haldia-Barauni crude pipeline, expansion of the pipeline from Saliya to Mathura via Viramgam and Koyali and some degree of investment for the six million tonne Koyali refinery.
There are many other ongoing projects which include the six million tonne Panipat refinery, expansion of the Gujarat refinery, production of paraffin wax at Barauni refinery, wax hydrofinishing and coking units at Digboi refinery, branch pipeline to Saharanpur and Meerut from Panipat-Ambala and Panipat-Delhi sections of the Mathura-Jalandhar pipeline, LPG import facilities at Haldia etc. The capital expenditure for 1998-99 will be factored inIOC's total Ninth Plan outlay of Rs 30,000 crore.
Sources say that the company would look at various options of raising the money to finance these projects. A key avenue will be a public issue which will go hand-in-hand with the government's proposed disinvestment programme.
During the last financial year, IOC had sought shareholder approval at the extra-ordinary general meeting to offload 10 per cent of its equity in the form of a public issue. This never took place as the Centre's planned divestment of five per cent overseas had to be constantly deferred owing to poor market conditions.
The public issue would have raked in around Rs 2,000 crore to IOC and gone a long way in tackling the huge outstandings arising from the oil pool account. Being the sole canalising agency for crude, IOC had to bear the brunt of the crisis. It reached a stage when deferred credit had to be sought for crude purchases from the Oil and Natural Gas Corporation which only put a further strain on IOC's financialposition.
The position was worsening by the day with no move by the government to raise prices of select petroproducts. The proposed GDR offering by the government had to be put off as it was feared that potential investors would think twice about putting their money in a Fortune 500 scrip which was going through troubled times. The anxiety has been reflected in the 1996-97 annual report of IOC which states: "Considerable liquidity crunch was faced during the year under review as a result of mounting receivables from the oil pool account which crossed Rs 9,000 crore. It was only through excellent financial management that the impact of the crisis was not permitted to affect the day-to-day operations and project implementation. The shortfall in resources was met through increased external commercial borrowings which continued to be secured at very fine interest rates."
Though the government eventually raised prices of liquefied petroleum gas (LPG) and diesel and also made an issue of bonds in lieu of theoutstandings to oil companies, IOC could not push for its public offering during this financial, too. Sources say that the corporation is confident that there will be no glitches during 1998-99.
The IOC scrip has been hovering around Rs 650 at the Bombay Stock Exchange and a 10 per cent offering (of the share capital which is Rs 389.27 crore) could command a good premium. This will translate into an eventual issue size of around Rs 2,000-Rs 2,500 crore, assuming that the premium will be around Rs 600 per share.
INSIGHT -- Too many projects
The need for hiking the capital expenditure has been necessitated due to increased number of projects in the pipeline. A poor liquidity position during the past year had slowed down the commissioning of the projects, which increased the requirement of funds during 1998-99. With the implementation date for the first phase of the Nirmal Singh committee recommendations fast approaching, the company will have to fortify itself real fast. Recognising this fact, IOCincreased its investment in setting up pipeline infrastructure, which added to the fund requirement.
The only problem will be meeting the fund requirement. As capital expenditure will require importing certain capital goods, a weak dollar and a likely imposition of duties on imported capital goods will boost the cost of projects.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
