Cabinet may clear Rs 24,000cr oil bonds

With the petroleum ministry putting up the issue of oil bonds for Cabinet approval next week, the oil marketing companies are likely to soon get relief from losses on retail sales.

"Oil bonds are on the agenda of the Cabinet meeting next week," said a top oil ministry official, adding that around Rs 24,000 crore worth of oil bonds are likely to be cleared.

Oil bonds are issued to the government-owned oil marketing companies "" Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation "" to partially compensate them for selling petrol, diesel, LPG and kerosene at government-controlled subsidised prices.

Exploration companies like the Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) also bear a part of the subsidy burden by offering discounts to the marketing companies.

Pressure has been building up on the government to pass on some of the subsidy burden to the oil consumers by hiking retail prices "" a politically unpopular move.

"The Cabinet will review the oil prices when it meets next week. Prices of petrol and diesel will also be up for review," said a top petroleum ministry official.

He, however, added that a hike in prices of automobile fuels was unlikely due to political compulsions. "With the possibility of elections, an auto fuel price hike is unlikely," the official, who did not want to be named, said.

The total under-recoveries for the three oil marketing companies for the full year is projected to be little over Rs 54,000 crore. Besides the oil bonds, the ONGC will bear a major part of the burden, while OIL and GAIL will also share a part of it.

The three oil marketing companies are together losing around Rs 200 crore a day on retail sales of petroleum products. Sarthak Behuria, chairman of the IOC, the country's largest marketer of petroleum products, today said his company was losing around Rs 100 crore a day.

"I am given to understand that the government will approve oil bonds next week," he said on the sidelines of an energy conference today.

"With global crude oil prices remaining high, our working capital is under pressure, and our borrowings have increased significantly. However, a strong rupee value against the dollar is offsetting some of the losses," another senior IOC official said.

The basket of crude oil that Indian refiners buy has averaged $75.27 per barrel in October so far. In September, the average price of the basket was $74.83 per barrel.

In the last financial year, the government had cleared oil bonds worth Rs 28,300 crore. Of this Rs 24,100 crore worth of bonds were disbursed to the oil marketing companies. The total under-recoveries in 2006-07 was around Rs 48,000 crore.

With the total value of oil bonds in this financial year remaining the same as the last year, but the total under-recoveries estimated to be over Rs 6,000 crore higher this year, the oil marketing companies will have to bear a higher burden of the underrecoveries.