Govt may spare consumers, issue bonds to bail out oil companies

NEW DELHI: One man’s poison can be another man’s meat. Poll fears may clear D Street of bulls but vehicle owners are sure to give bears company in rejoicing over prospects of mid-term elections.

Monday saw the Trimurti of Prime minister Manmohan Singh, finance minister P Chidambaram and petroleum minister Murli Deora audit collateral damage from the global spike in crude prices. But with election on the horizon, an increase in retail prices is a almost a no-no. Instead the Cabinet may take up the issue of oil bonds this week to ease the oil companies liquidity crunch.

Officials said the petroleum ministry had sent a note to the Cabinet Committee on Economic Affairs (CCEA) drawing attention to the deteriorating health of the public sector oil companies. “The note merely states the current situation of oil companies (under-recoveries) in the light of global crude oil prices. It has, however, not recommended a price hike,” a government source said.

The note left it to CCEA to decide on a bailout package. Oil companies are losing about Rs 190 crore daily on sales of petrol, diesel, PDS kerosene and cooking gas.Monday’s meeting is likely to expedite government’s decision on oil bonds, sources in both finance ministry and petroleum ministry said. When contacted, petroleum minister Murli Deora confirmed the two Cabinet ministers met the prime minister on Monday and discussed various issues.

The government is likely to issue oil bonds worth Rs 12,000 crore to OMCs this month. This would partially compensate OMCs for selling petrol, diesel, PDS kerosene and cooking gas below the cost. “It is expected that the government may issue Rs 24,000 crore worth of oil bonds in this fiscal year. Half of these are expected in the first tranche,” an official said.

The average price of crude in Indian basket was $74.83 per barrel in September. In the current month it is even higher at $75.51 per barrel (October first week average). Separately, petroleum secretary M S Srinivasan said in Coimbatore that the Cabinet is likely to take up the petroleum products pricing issue next week. “Different choices are available to tide over the situation. Revising prices is just one.

The marketing companies could be provided compensation as they were making losses on 70 % of the products they sell. Upstream companies such as the refineries, which were making windfall gains, could be asked to part with some of their margins to cut OMC losses. A third alternative is to restructure taxes. Issue of oil bonds could also be considered,” he added.