Crude oil price past $75, early bonds likely

With the price of the crude oil basket that Indian refiners buy touching a new all-time high of $75.35 a barrel on Friday, the latest day for which data are available, the government is trying to ensure issuance of oil bonds for the government oil marketing companies in this quarter itself.

The under-recoveries of the three government oil marketing companies "" Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corportaion Ltd (BPCL) "" have risen to almost Rs 200 crore for the first half of September, from around Rs 180 crore in the previous fortnight.

The petroleum ministry has written to the finance ministry for approval of Rs 8,000 crore worth of oil bonds for the second quarter ending September 30. This would partially offset the rising revenue loss of the oil marketing companies.

"Though the bonds may be issued in the third quarter (October-December), we are trying to get a firm commitment from the finance ministry so that the oil marketing companies can book revenues from the bonds in this quarter," said a senior petroleum ministry official.

The companies have been calling for a hike in the price of petrol and diesel, which they sell at subsidised prices. The last hike was in June 2006. Since the political situation is delicate, the government is not even looking at the option of a price hike, according to the official.

The price of the Indian basket has risen almost 6 per cent in September. The rise in the last one month is over 11 per cent.

The rising crude oil prices have bumped up the estimated oil bonds needed in this financial year (2007-08) from Rs 19,000 crore to Rs 24,000 crore. Rs 24,300 crore worth of oil bonds were issued in the previous financial year.

The total under-recoveries of the three oil marketing companies in this fianancial year are expected to be around Rs 58,000 crore, which will be shared equally by the government (through oil bonds), the upstream oil companies (such as ONGC) and the marketing companies themselves.

"The disbursal of oil bonds needs parliamentary approval. While the bond issue is expected to be included in the supplementary demand for grants in the winter session of Parliament in December, the oil companies are likely to get the option of booking the bonds in the second quarter itself," the official said.

Indian Oil Corporation, the country's largest oil marketing company, is incurring a revenue loss of Rs 5.73 per litre on sale of diesel as against a Rs 4.38 per litre loss in the preceeding fortnight, senior company officials say.

The revenue loss on the sale of petrol is Rs 3.36 per litre, up from Rs 2.21 per litre in the second fortnight of August. "We are losing around Rs 95 crore a day on sale of petroleum products, almost Rs 10 crore higher than the previous fortnight," the official said.

"It will be very difficult to maintain profitability in the current scenario. Something needs to be done fast," said a senior official of an oil marketing company.

The average price of the Indian crude oil basket in September so far is $73.34 per barrel as against $69.03 in August. The global price of the crude oil has been hovering around the all-time high of $80 a barrel.