Public sector oil marketing companies have sought the inclusion of special oil bonds for investment by the provident fund trust. The State Bank of India (SBI), the fund managers of Employee Provident Fund Organization (EPFO), has been reluctant to participate in the liquidation of the oil bonds. SBI has contended that it was waiting for clarification from the government on the category of investment the bonds would attract as per EPFO guidelines.
In a letter to the labour ministry, Indian Oil Corporation said, “Considering that special oil bonds are liquidated at spreads over prevailing G-Sec yields, EPFO will earn better yields by investing in special oil bonds compared to investment in G-Secs.”
The confusion has arisen inspite of the finance ministry stating through a office memorandum that the oil bonds are central government securities issued in terms of the Public Debt Act and accordingly eligible as an investment.
The government has been issuing special oil bonds to state-owned oil marketing companies for selling petrol, diesel, kerosene and liquefied petroleum gas cylinders below international trade parity prices. The finance ministry had issued bonds to the tune of R. 24,121 crore in 2006-07 and over Rs 20,300 crore in the 9 months of the current financial year. Estimates show that the oil bonds would touch Rs 28,000 crore by the end of the financial year.
The bonds are liquidated by the oil marketing companies to meet their working capital requirements as well as to reduce their borrowings. Indian Oil Corporation's borrowings have touched Rs 28,834 crore in the 9 months of the current financial year. With SBI reluctant to participate on behalf of the EPFO, oil marketing companies are compelled to liquidate the bonds at a low price with limited buyers.