Oil ministry wants Reserve Bank to buy oil bonds

August 1st, 2008 - 10:26 pm ICT by IANS  

New Delhi, Aug 1 (IANS) The petroleum ministry wants the Reserve Bank of India (RBI) to resume buying oil bonds for oil marketing companies to ease their acute cash crunch, a senior official aid Friday. “We have been assured by the finance ministry that it will take up the matter with the RBI,” additional secretary S. Sundareshan told reporters.

RBI Governor Y.V. Reddy Tuesday said the central bank would stop buying oil bonds from Indian oil companies as global oil prices have been falling over the past three weeks.

London’s benchmark Brent crude price fell to $122.96 a barrel Friday from $125.73 a barrel the day before. It had peaked at $145.15 July 3.

Oil majors Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) are given oil bonds by the government to compensate for petrol products at subsidised prices.

The RBI governor’s statement was followed by protest from oil companies, which are facing a severe liquidity crunch after the finance ministry stopped issuing oil bonds for the last two quarters.

The RBI earlier only allowed oil companies to sell just one-fourth of their bonds in a quarter. From June, the RBI began buying bonds worth Rs.184 billion from the oil companies, with a daily ceiling of Rs.15 billion.

Oil companies have exhausted all their bonds and new bonds for the quarter ending June 30 will only be issued after parliamentary approval.

IOC has announced a first quarter profit of Rs.4.15 billion this week, but this was 72 percent down from the corresponding period last year.

The other two oil majors, HPCL and BPCL, have posted losses of Rs.8.88 billion and Rs.10.29 billion respectively.

Sundareshan said the finance secretary has been apprised of the situation, and that the finance ministry may tell the RBI “today or tomorrow”.

“I hope there were will be no more restrictions,” he said.

He said arrangements have been made to ensure oil marketing companies have adequate liquidity till the next supplementary budget is passed and oil bonds begin to be issued again.

But the passage of the supplementary budget depends on when the next parliamentary session starts, which is still to be decided.

Sundareshan said efforts will also be made to ensure that the limits of borrowing from banks is increased as a short-term solution.

IOC requires about Rs.100 billion to Rs.200 billion cash as a short-term measure.

Meanwhile, the petroleum ministry clarified that oil marketing companies will continue to register and distribute new liquefied petroleum gas connections.

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