Oil bonds sought to cover losses
The Petroleum Ministry on Friday ruled out any increase in the prices of petrol, diesel, kerosene and liquefied petroleum gas and will be approaching the Finance Ministry to issue oil bonds to tide over recoveries of Rs. 50,400 crore in this financiall year at current prices.
The under-recoveries -- a reference to the revenues foregone by oil marketing firms that charge consumers lower-than-market prices -- would have been in the vicinity of Rs. 75,000 crore at current prices but for the appreciation of rupee against global currencies. The prices of petrol and diesel were last revised in the middle of February this year, taking into account an oil price of $ 55 per barrel. Currently, average global crude oil prices for the month have hovered above $ 65 a barrel.
“There will be no hike in the prices of petroleum products. We will approach the Finance Ministry to issue oil bonds for the current financial year to tide over under-recoveries made by public sector oil marketing companies by selling motor and kitchen fuels below international price parity,” Petroleum Secretary M.S. Srinivasan told reporters.
Industry sources say the Petroleum Ministry is awaiting specific details of under-recoveries by oil marketing companies. The ministry is expected to seek oil bonds of about Rs. 17,000 crore. In 2006-07, the Finance Ministry had issued oil bonds to the tune of Rs. 24,151 crore.
As per the burden sharing arrangement worked out by the government in the past four years, the upstream oil companies—Oil and Natural Gas Corporation, Oil India Ltd and GAIL (India) – share one-third of the under recoveries faced by oil marketing companies. The oil bonds take one-third of the burden, while the marketing companies take the impact of the remaining burden on their balance sheets.
Hindustan Petroleum Corporation Ltd's (HPCL) chairman and managing director Arun Balakrishnan said his company was taking a hit of Rs. 40 crore per day because of petroleum prices not being raised in spite of a surge in global crude oil prices. “There is an under-recovery of Rs. 5 per litre in petrol and diesel, while an LPG cylinder is being sold Rs. 150 below cost,” he said.