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• High interest cost and losses incurred on sale of petroleum products at subsidised rates has become a big cause of concern for state run oil retailer Bharat Petroleum Corporation (BPCL).In an interview to CNBC-TV18,  RK Singh, the company’s chairman and managing director said that in the current fiscal, interest outgo would be around Rs 1,900 crore as the company has borrowing of around Rs 26,000 crore to meet its working capital requirements. The company paid around Rs 1,300 crore toward loan repayments charges  during last fiscal.Apart from high interest rates, a constantly falling rupee against the dollar has become a cause of concern for the firm which imports nearly 70% of the crude oil requirements. A rupee which currently stands at Rs 52.84 against a dollar, has weakened over 12% year-on-year.
• Being one of the largest purchaser of dollars in the domestic currency market, BPCL has lost around Rs 2,000 crore in December quarter due to rupee constantly depreciating against the dollar—as oil remains the biggest import item in India.Meanwhile, the company is also reeling under losses of around Rs 32,000 crore due to sale of petroleum products at government controlled rates. But despite media reports suggesting that there could be a hike in petrol prices next month, Singh said the company is in no hurry to raise petrol prices even when it is incurring a loss of 80-90 paise on sale of per litre of petrol and is hopeful that the government will subsidise the company with the losses it has made during the fiscal on sale of fuel on subsidised rates.
• Simultaneously, the company plans to spend around Rs 10,000 crore over the next five years to develop oil and gas blocks, as the company has stepped up investments to expand its upstream business. The company has assets in Mozambique and Brazil.
• Q: Just take us through the quantum on the likelihood of a petrol price hike coming through considering that there is some amount of politics with regards to the UP elections etc coming up. Just take us through the quantum that has been mulled and the amount and the possibility of it.
• A: I do not want to talk about politics, but let me tell you that as far as the gasoline prices are concerned, the situation has not changed much since the last revision, except that the rupee has weakened a bit more. Therefore I do not see great hurry to raise the price. Let us watch the situation for another one week and see how the prices change or what the fluctuation taking place in the dollar-rupee exchange is. We will take a call then after a week or so.
• Q: How much exactly are you losing on petrol right now?
• A: I think there is an under recovery of around 85-90 paise right now. But it all depends on a particular day. We go by the average of 15 days so if you are talking about today’s situation, it could be around 85-90 paise per litre.
• Q: The reason most of the people on the street talk about any kind of political pressure is because even in the December 15th revision, oil marketing companies decided to not go ahead and revise despite facing at least a bit of under recoveries. You also right now are saying that perhaps you are not a big hurry to go ahead and change prices.
• A: I told you the situation has remained almost the same as it was when we did the last revision. So since there is not much change, why should we rush to any conclusion right now.
• Q: Could you tell us the under recoveries that you are facing in other products?
• A: I think on diesel it is Rs 11 plus, on kerosene Rs 28 plus per litre and on LPG it’s about Rs 285-286 per cylinder. This is the kind of under recovery we are incurring on three sensitive products which are of course regulated by the government.
• Q: One of the things that has been plaguing the entire industry has been the high interest outgo for the company. What exactly is the debt position for the company at this point in time and what sort of interest outgo could we see for FY12 as a whole?
• A: Yes indeed, high interest is a matter of serious concern for all of us. In this nine months period that we seen, I think the total interest cost alone for BPCL is around Rs 1300 crore. By the end of the year, if the same trend continues and we continue to borrow at a high cost, the total interest cost for FY11-12 is estimated to be around Rs 1800 to 1900 crore for BPCL alone.
• Q: Take us through you gross debt figure as well?
• A: Our total borrowing at the moment is about Rs 26,000 crore.
• Q: What also got the street very excited just a few days back was the kind of encouraging appraisal that they got for Mozambique gas blocks. Could you take us through the progress on that?
• A: There have been three significant discoveries for BPCL. We have two discoveries in Brazil; one huge discovery of gas in Mozambique and the third in Indonesia. Mozambique is in quite an advance stage, I think we are progressing quite well and we expect that by the year 2017-18 gas will start flowing out from there. The total reserve is estimated to be 30 trillion cubic feet (TCF) of which our share is about 10%.
• We are in a development stage and total expenditure during the next five years for all these discoveries is estimated to be USD 20 billion and our share would be around Rs 10,000 crore that is USD 2 billion.
• Q: What would make you most comfortable to see in terms of reforms and could lessen your burden in terms of under recoveries?
• A: These are the decisions the government will have to take, but from our point of view, I think there are two things that are bothering us actually. One is the forex losses because of weakening of rupee. There has been inventory loss, the losses in the foreign loans because of the high interest cost or the weakening of the rupee. The second thing is the domestic borrowing cost. If these two things are under control, I don’t think situation will be as bad as it is today.
• My own assessment is that once the inflation is under control, which is quite likely to happen, the Reserve Bank of India must reduce the interest cost. That will give us a big relief. Plus the compensation from the government should come on time. The rupee depreciation should also be arrested. These are the things that will help us a lot.
• Q: From the government’s side, how much of cash compensation are you expecting and when are you likely to hear more about the subsidiary sharing?
• A: The government has already announced Rs 30,000 crore for fiscal year so far and that money has started coming now. The balance is yet to be announced by the government, but we expect that we would be compensated 100% between the upstream and the government. This is our hope because otherwise this year has been bad, particularly because of forex losses as well as the high interest cost.
• Q: With respect to such a high gross debt on the books, any kind of monetization that BPCL will be considering?
• A: I think Bina Refinery is always running, it is stabilized so there is no issue around that but that is a separate company. The profit or loss of Bina Refinery is not coming on BPCL books. Monetization is expected to take place in year 2017-2018. In terms of monetization of assets, at the moment I do not think there is any significant plan as far as BPCL is concerned.
• Q: You spoke about issues such as the rupee depreciation and high interest outgo plaguing the bottom-line. Just give us the sense of how you would complete FY12 if in case the situation remains the same?
• A: There will be adverse impact on the profitability, that I cannot deny, but how much and what will be the number I cannot disclose now; I myself do not know. If the compensation is 100% by the government and upstream put together, if the interest cost is under control for the balance period of the financial year, and also if the rupee deprecation is arrested, then things will be better off. But I can’t predict how much.
• Q: How much compensation are you expecting from the government as a whole for BPCL in particular?
• A: BPCL under-recovery for the year would be Rs 32,000 crore. One third of this is supposed to come from the upstream companies and the balance we expect will come from the government. They have already announced Rs 30,000 for the entire industry and our share in that would be around Rs 7,000 crore.

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