Govt bonds become a burden for oil firms
New Delhi   26-Dec-2007
The Bonds issued by the government to compensate the public sector oil companies for selling petrol, diesel, LPG and kerosene at subsidized, prices are turning out to be a liability for them. A senior Indian Oil official told Mail Today that there is a glut of bonds in the market and it has become increasingly difficult to sell more bonds in order to raise cash. "This has virtually reduced them to mere pieces of paper. We would prefer cash to paper,"" he pointed out. The liquidity crunch has forced the oil companies to take recourse to heavy borrowing at high rates of interest to run their day-to-day operations. This is expected to put additional pressure on the government to raise petrol and diesel prices. IndianOil currently holds around Rs 11,000 crore worth of bonds from the previous issue. Another Rs 6,327 crore worth of bonds due to the company for the first half of the current fiscal have still not been issued by the finance ministry. IndianOil had borrowed Rs 27,000 crore during the whole of last year (2006-2007) but has already taken loans to the tune of Rs 26,000 crore in the first eight months of the current financial year. The borrowing of the company would go up to Rs 39,000 crore for the entire year if this trend continues. Bharat Petroleum and Hindustan Petroleum expect their borrowings to go up from around Rs 10,000 crore last year to around Rs 16,000 crore at the end of the current financial year in March, 2008. Indian Oil Corporation which has over 50 per cent market share expects its borrowings to increase from Rs 27,000 last year to Rs 39,000 in the current fiscal. The borrowings of the three public sector oil companies are expected to shoot up to around Rs 71,000 crore during the current financial year ending on March 31, 2008. This represents an over 50 per cent jump over the Rs 47,000 crore raised as loans during the previous financial year. At the end of November these companies had already borrowed Rs 44,000 crore. The total loss of the oil companies on account of subsidized sales is projected to be in the region of Rs 75,000 crore. The government is expected to issue bonds of one-third of this amount as partial compensation while upstream oil companies ONGC and Oil India Ltd that produce crude oil, bear another one-third of the subsidy burden. This leaves the downstream marketing companies with one-third of the burden. The oil bonds are essentially IOU slips issued to IndianOil, Bharat Petroleum and Hindustan Petroleum. But while the government manages to postpone its payments the oil companies are in desperate need for cash as the average price of the Indian basket of crude imports is working out to over $ 88 per barrel. The corresponding price for the previous year was $ 65 per barrel. Over 70 per cent of the crude refined in the country is imported and there is little that the oil companies can do to cut costs once international prices shoot up. The government has been postponing a decision on hiking petrol and diesel prices due to political reasons. Since the Gujarat and Himachal Pradesh elections are over, a group of ministers is expected to meet in the first week of January to take the tough decision. Prices of petrol and diesel are likely go up by a modest Rs 2 per litre although, the oil companies are losing around Rs 9 per litre on the sale of these fuels.