IOC, BPCL and HPCL get oil bonds worth Rs 22,000 crore

The government gave oil marketing companies something to cheer before they prepare the third quarter’s results. They have got bonds to compensate them for the losses incurred on selling retail petroleum products like PDS kerosene and LPG. Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation have been issued bonds worth Rs 22,000 crore, with the companies getting 54.4%, 24.2% and 21.3% respectively.

The bonds come with a coupon of 6.35%, are not eligible as statutory liquidity ratio instruments but can be bought by insurance companies, provident funds, superannuation and gratuity funds. They are also eligible for repo (ready forward) transactions. The companies can hence liquidate these instruments and raise cash. The petroleum ministry has projected the total under-recoveries on the sale of sensitive petroleum products at Rs 110,381 crore during 2008-09. These under-recoveries are partly absorbed by the oil marketing companies while the rest is absorbed by upstream oil companies and oil bonds.

In a release earlier this month, the government had projected an under recovery of Rs 104,931 crore during April-September 2008. The sharp fall in crude prices even as petrol and diesel prices have not fallen as much has given these companies that much needed cushion, it seems. That explains the narrow difference between the first half and the projected full year figures. But the government had projected Rs 44,967 crore as the bonds to be issued to the oil marketing companies in 2008-09, so there may be another tranche of bonds coming.

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