Richa Mishra

New Delhi, Jan. 5

THE Petroleum Ministry has 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 would be five years.

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

Not satisfied with the conditions, the Petroleum Ministry has requested the Finance Ministry to reconsider the proposal, sources said.

According to the Petroleum Ministry, which had proposed oil bonds worth Rs 11,500 crore to be issued to the oil marketing firms, the small size of the bonds, coupled with the caveats, was of little help to the companies. The Petroleum Ministry had projected the under-recoveries from the sale of petrol, diesel, LPG and kerosene at Rs 38,154 crore. It had proposed that the bonds carry 7-per cent interest with a seven-year tenure.

(This article was published in the Business Line print edition dated January 6, 2006)
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