The Hindu Business Line : Oil cos allowed to sell bonds to RBI

On an average, the three oil majors buy crude worth $3 billion a month of which IOC accounts for over half of this amount with HPCL and BPCL taking up the balance.

Murali Gopalan

Mumbai, Dec.2 IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation have been allowed to sell their oil bonds to the Reserve Bank of India (as part of its special market operations) and meet their forex needs for crude and product purchases.

Quite unlike the earlier practice, however, the three oil refiners will only get 50 per cent in dollars from RBI and the balance in rupees. They can then buy their forex from the market with these rupees and fund their monthly crude and product bills.

According to top oil industry sources, the move will ensure that not too much forex moves out of the banking system. It could also be intended to prevent high volatility in the rupee.

On an average, the three oil majors buy crude worth $3 billion a month (Rs 15,000 crore) of which IOC accounts for over half of this amount with HPCL and BPCL taking up the balance.

The good news is that crude has become more affordable now at $55/barrel compared to the earlier levels of $147/barrel but then the rupee has also weakened over the last few months and offset this benefit to an extent.

The Government had, last month, issued Rs 22,000 crore oil bonds to the three companies which were intended to partially compensate them for losses incurred on sale of petrol, diesel, cooking gas and kerosene at subsidised prices.

Of this, IOC got Rs 11,975.51 crore followed by HPCL and BPCL with Rs 5,330.76 crore and Rs 4,693.73 crore each.

These bonds were only part of the Rs 65,000-crore package earmarked between January and September.

The balance Rs 43,000 crore is expected in two tranches by the end of February.

The Government has already hinted that no more oil bonds will be issued for the rest of the year because the losses on sale of fuels have since fallen considerably.

In fact, the oil PSUs have begun making profits on petrol and diesel which could even mean a price cut in the coming weeks.

The companies are only concerned that the entire process of getting money against the bonds could be a long drawn out process which brings added problems of higher interest costs.

They are also hoping to get a financial package which can make up for the losses incurred between October and March 2009 as well as for the balance for the first half which have not been completely compensated.

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