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Richa Mishra

New Delhi , March 26

The persuasive skills of the Petroleum Ministry would be put to test once again. The Ministry is set to approach the Finance Ministry to consider allowing the oil companies to borrow capital from the Oil Industry Development Board (OIDB) to improve the liquidity of these companies.

The Petroleum Ministry had earlier sent a request to the Finance Ministry to allow oil companies to borrow short-term working capital from the OIDB as their bank loans credit limits were being exhausted.

The issue was considered afresh at a recent board meeting of the OIDB and it was felt that since the Oil Industry (Development) Act, 1974 does not restrict the board from giving such loans, the proposal could be considered in view of the special circumstances, an official source said.

This arrangement could be for a period of one year, after which it could be reviewed, the official told Business Line. The argument put forth by the Petroleum Ministry was that this loan facility enables the oil marketing companies to borrow at an interest rate lower than what the banks charge.

Besides, the OIDB could earn more interest than it receives from funds parked in banks.

Indications are that the Finance Ministry felt that OIDB funds are for long-term investment and should be given as project loans. Besides, the OIDB also has investment commitments to build strategic storages.

However, at a meeting with the Finance Minister, Mr P. Chidambaram, the Petroleum Minister, Mr Murli Deora, had raised the issue, where the former is said to have agreed to consider the proposal provided the Act permits it.

The OIDB extends loans to oil companies only to meet a part of their capital expenditure on specific projects. About Rs 3,000 crore of OIDB's money is lying in banks. The board gets interest of 7.31-8 per cent a year.

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