The Hindu Business Line : Oil bonds to carry 7 per cent interest

THE Finance Ministry has accepted the recommendation of the Petroleum Ministry to change the terms and conditions of the oil bonds to be issued to oil companies to partly compensate them for losses due to selling petroleum products below cost price.

"The Finance Ministry has agreed to pay an interest of seven per cent on the oil bonds issued to oil companies for the losses they had incurred on the sale of petroleum products," a senior official of the Petroleum Ministry said.

The bonds would be issued in two tranches of Rs 2,000 crore and Rs 1,750 crore.

The bonds will have three-year, six-year, and nine-year maturity profiles.

The Petroleum Ministry had asked the Finance Ministry to re-examine the Rs 5,750-crore oil bond structure proposed by it. The Government had in December 2005 taken Parliamentary approval, in the second batch of supplementary demands, for grants for Rs 9,080 crore, of which Rs 5,750 crore was to be allocated to oil marketing companies through oil bonds.

This was to cover the under-recoveries of the oil firms from the sale of petroleum products.

According to the Finance Ministry proposal, these bonds were zero-interest, at par bonds.

Further, they could be offloaded only in the secondary market and not in the primary market. The tenure of the bond was to be five years.

Another condition was that in the first three years the companies could offload only Rs 2,000 crore; in the next two years Rs 2,000 crore, and the remaining Rs 1,750 crore in the last tranche.

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