Oil firms see little gain from dollar window

Say RBI action will only correct volatility

A day after the Reserve Bank of India (RBI) decided to open a foreign exchange swap window to meet the daily dollar requirements of public sector oil companies, the latter do not anticipate any direct gains except that it would bring down rupee volatility.

However, the measure had an immediate impact on the market, with the rupee posting its biggest single-day gain since 1998, to 66.59 a dollar on Thursday. Oil company executives said the move would not have any financial impact on the companies except some minor relief at the under-recovery level.

It was on Wednesday that the central bank opened a dollar window for the three oil marketing companies (OMCs) — IndianOil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation — who are the biggest dollar buyers. The OMCs require $110 billion on an annual basis for imports of crude oil, while on a daily basis, they purchase $300-500 million.

“This would not have any huge financial impact on us. However, some minimal reduction on under recovery would happen,” said a senior IOC executive.

RBI had opened a similar window for OMCs in 2008,  when international crude oil prices crossed the $140-a-barrel mark but experts believe the situation today is different, since the rupee was in a more stable terrain of 40s versus the dollar then.

“Through the move, the country wants to reduce the demand and make sure at least 30-40 per cent of the dollar requirement is met through RBI,” added Param Sharma, chief executive at NSP Forex.

How it works?
Under the swap facility, RBI would undertake to sell/buy dollar-rupee foreign exchange swaps for a fixed tenure with the OMCs through a designated bank. This would mean that while OMCs purchase dollars directly from RBI through a designated bank and swap it for a date two-three months after. “This is a regular process by RBI, but the current scenario is completely different from 2008. At that time, we had relief on the rupee front as it was stable. But this time, both, crude prices and the rupee are a real sort of concern for the country. For OMCs, this would help in reducing the under recovery to a minimal level and avoid market speculations,” said B Mukherjee, former Director – Finance, HPCL.

Even if for three-four months, the pressure of OMCs buying from the inter-bank market would be less, it would slowly build up after that. According to industry sources, this would be a viable formulae only if dollar flows improve, helping the OMCs to buy dollars and return them back to RBI. “This is just a temporary measure because even if OMCs can purchase dollars from RBI now, they have to buy from the market and pay back to RBI, before the designated date, once the rupee stabilises,” added Abhishek Goenka, founder and chief executive officer, India Forex Advisors.