If crude oil prices stay at current levels, the Indian government would not be required to issue additional oil bonds to the four state-run oil marketing companies in the current financial year, Finance Minister P Chidambaram said today.
Oil retailers, however, are unlikely to cut prices of petroleum products in response to falling crude prices unless private retailers like Essar Oil and Reliance Industries Ltd restart operations and offer a lower price.
The Indian basket of crude oil prices hit a three-year low of $43.82 a barrel on last Friday, which is almost $100 less than the historic high of $142 a barrel on July 3 this year.
At present, companies like Indian Oil Corporation (IOC) incur losses on only two products — kerosene and domestic cooking gas — after the sharp drop in crude oil prices. “If the oil prices remain at the same level, there will be no need to issue further oil bond,” Chidambaram told reporters at the Economic Editors’ conference. However, he declined to comment whether prices of petroleum products would be reduced, saying that petroleum ministry has to take a decision.
Oil bonds are crucial for oil marketing companies, because the government compensates them for nearly half their under-recoveries through this method. Government oil companies typically charge 71 per cent and 53 per cent below cost for kerosene and domestic cooking gas, respectively.
The rest of the cost-price gap is borne by government-owned crude-producing companies like ONGC Ltd and Oil India Ltd and by oil retailers themselves.
In the six months up to September 2008, the government’s share is estimated at Rs 44,967 crore out of total under-recoveries of Rs 92,853 crore.
However, the finance minister said under-recoveries for the full year would still be at Rs 1,25,000 crore because of losses incurred so far. Parliament had cleared oil bonds worth Rs 66,000 crore in its last session. So far, Rs 22,000 crore worth of oil bonds have been released to the oil companies, who, in turn, will swap the bonds for dollars through special market operations undertaken the Reserve Bank of India (RBI).
Oil marketing companies need around $3 billion every month to buy crude oil. India imports more than 70 per cent of its consumption.
