Illiquid oil cos seek bonds, higher credit

NEW DELHI: Reeling under acute liquidity crunch, public sector oil companies IOC, BPCL and HPCL may not be able to carry their operations beyond this month, unless the government takes necessary steps. Pressing a panic button, the oil ministry has told North Block that even after excluding Rs 20,000 crore capital investment by IOC in Paradip refinery project, the company���s borrowing limit would be constrained for carrying out its operations beyond September.

It said the un-exhausted credit limits and oil bonds to HPCL and BPCL would not last beyond September, making it difficult for them to continue their operations. In other words, oil PSUs would not be able to import crude oil and petroleum products, essential to maintain normal supply of fuels in the country. Oil ministry has proposed a bail-out package that includes additional credit limit to companies, revival of the special market operations (SMOs) by the Reserve Bank and advance payment of bonds. It is learnt from official sources the finance ministry had been briefed about the fast deteriorating liquidity position of the oil marketing companies (OMCs) last month.

���Some breather is already given to OMCs. IOC���s request to exclude Rs 20,000 crore committed for lending to the Paradip refinery is excluded while reckoning the permissible single borrowers limit by the consortium of banks funding the project,��� an official said.���The RBI may soon revive SMOs,��� he said. The apex bank, while reviewing its credit policy on July 29, had withdrawn SMOs. The scheme allows oil marketing companies to exchange oil bonds for forex to buy crude.

Petroleum ministry has also pitched for issuing bonds to OMCs in advance for the second and the third quarters which could be adjusted later on the basis of actuals. ���It would be appropriate to provide for the estimated oil bonds to be issued to OMCs for the second and the third quarter in the first supplementary Budget itself, based on actual under-recoveries during the first quarter of 2008-09 so that the release of oil bonds do not have to await further Parliamentary approval,��� an official source said.

OMCs are expected to get oil bonds worth Rs 24,432.50 crore for the under-recoveries (Rs 48,865 crore) incurred in the first quarter of 2008-09. The government is yet to issue about Rs 14,000 crore oil bonds to OMCs for the last quarter of 2007-08.Bonds for the first quarter of 2008-09 and for the last quarter of 2007-08 will be issued to companies after the Parliament approves the supplementary budget in October.