RBI allows hedge on oil imports

June 4th, 2008 - 12:12 am ICT by IANS  


Mumbai, June 3 (IANS) The Reserve Bank of India (RBI), the country’s central bank, Tuesday announced that it would allow domestic oil companies to hedge on crude oil imports in overseas exchanges and markets. The bank in another notification also announced its decision to increase the limit on investments by firms in the overseas energy and natural resources sectors.

Releasing the two notifications late Tuesday evening, the RBI stated that domestic crude oil refining companies can “hedge their commodity price risk on crude oil imports in overseas exchanges or markets, on the basis of their past performance up to 50 percent of the volume of actual imports during the previous year or 50 percent of the average volume of imports during the previous three financial years, whichever is higher.”

The notification also stated that the companies can also hedge, “the commodity price risk on domestic purchase of crude oil and sale of petroleum products on the basis of underlying contracts linked to international prices on overseas exchanges or markets. The hedging will be allowed strictly on the basis of underlying contracts.”

In the notification dealing with the overseas investments in the sector of energy and natural resources, the RBI has decided that it would allow domestic companies “to invest in excess of 400 percent of their net worth, as on the date of the last audited balance sheet, in the energy and natural resources sectors such as oil, gas, coal and mineral ores. The investments in excess of 400 percent of the net worth shall be made only with the prior approval of the Reserve Bank.”

Moreover, like the Navratna public sector undertakings (PSUs) which are allowed to invest in unincorporated entities in the oil sector (for exploration and drilling), the central bank has now extended “a similar facility to other Indian entities to invest in overseas unincorporated entities in the oil sector”, subjected to RBI’s approval.

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