The Hindu Business Line : OIDB puts on hold plan to offer working capital loans

Reasons for no Finance Ministry feels OIDB funds should be used for projects and building strategic reserves, and not to meet working capital requirements.

New Delhi , June 26

Oil companies will not be able to borrow short-term working capital loans from the Oil Industry Development Board (OIDB), with the Board putting on hold any decision on offering such loans.

Board decision

The Finance Ministry, while opposing the proposal to permit the oil companies to tap the OIDB for improving their liquidity, had, however, left it up to the OIDB to take a final decision. The OIDB board, which met recently, took a decision of not pursuing the issue. The Petroleum Ministry had approached the Finance Ministry to consider allowing oil companies to borrow capital from the OIDB.

Oil cos woes

Oil companies, which are suffering high levels of under-recoveries due to soaring international crude prices, have requested the Petroleum Ministry to allow them to borrow short-term working capital from the OIDB as their bank loans credit limits were on the verge of exhaustion. According to official sources, the oil companies may not need these short-term loans following an integrated package comprising price hike, oil bonds, and customs duty reduction announced by the Government on June 5. This measure would now enable the companies to reduce their under- realisations.

Finance Ministry opposes

The Finance Ministry had felt that the OIDB funds should be used for projects and building strategic reserves, and not to meet working capital requirements of oil companies. Besides, the Finance Ministry also observed that the oil companies were suffering financial strain due to very different reasons (surging international prices) and the OIDB loan amount would be too small to help them in any significant way, sources added.

Oil Ministry's proposal

According to the Petroleum Ministry's proposal, the OIDB could have offered loans for a period of one year, after which it could have reviewed the arrangement.

The argument put forth by the Petroleum Ministry was that this loan facility would enable 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.

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 the OIDB's money is lying in banks. The Board gets an interest of 7.31-8 per cent a year.

Some of the other decisions taken by the OIDB Board at the recent meeting include disbursing loans worth Rs 1,450 crore to the oil companies. Of this, it has sanctioned Rs 1,000 crore to Indian Oil Corp for its Panipat Refinery.