Indian Oil Corporation is revisiting its expansion plans due to the government’s delay in

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taking a decision on compensating it for losses incurred on selling products below the market cost. The company has now decided to go ahead with projects that have a higher internal rate of return (IRR) and go slow on those which are unlikely to generate much revenue.

"Projects with more than 15 per cent of IRR will be put on fast track," said Brij Mohan Bansal, chairman of IOC. Bansal, who took over as the chairman of IOC on Tuesday, is moving ahead full steam to make IOC an integrated-energy major.

The Paradip refinery project and the nuclear initiative with Nuclear Power Corporation of India (NPCIL) are some of the projects that IOC will try to speed up. On the other hand, it will go slow on the petrochemical projects in Orissa and Gujarat.

IOC and its peers — Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) — are losing Rs 196 crore everyday by selling fuel below market cost. IOC, with a market share of nearly 55 per cent, is incurring a loss of Rs 107 crore daily. At present, petrol is sold at a loss of Rs 4.97 a litre, diesel at Rs 3.27 a litre, kerosene at Rs 16.91 a litre and cooking gas at a loss of Rs 267.39 per 14.2 kg cylinder.

The government is yet to take a final call on the implementation of the Kirit Parikh panel recommendations on deregulating retail rates of diesel and petrol and hiking prices of kerosene and cooking gas. The second-largest refiner has plans to invest Rs 50,000 crore in the next few years to expand and diversify its businesses. Non-clarity on the compensation for under-recoveries has affected the company’s liquidity. At present, the debt size of the country’s largest OMC stands at Rs 50,000 crore.

In addition, IOC may look at equity partner for its Paradip refinery, which is expected to be operational by March 2010. “Thinking (of inducting equity partners) is on... We are thinking of offering equity at a premium to someone who can bring synergy to the project,” Bansal said. IOC will want to get on board a company that will offer crude supply at a discount. At the same time, IOC is preparing a detailed feasibility report on the 2.5 million tonnes Ennore LNG project. Indian companies such as NTPC and Larsen & Toubro (L&T) have shown interest in picking up equity in the project, while overseas player Repsol is keen on joining the initiative as a supplier. The equity structure and suppliers will be decided once the DFR is completed, which will take nine months, said Bansal.