Oil cos sell bonds to RBI at premium

The cash-crunch situation of the country's oil marketing companies have eased over the last 10 days as they are selling their oil bonds to the Reserve Bank of India (RBI) at a premium. Previously these bonds were being sold at a discount, primarily to Life Insurance Corporation of India, as there were very few buyers of the bonds.

Until a fortnight ago, these companies "" Indian Oil Corporation (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) "" were running short of cash to even buy the crude oil they require for their refineries. Now, they have more working capital in spite of a nearly 6 per cent increase in prices of the basket of crude oil they buy since fuel prices were increased on June 5. 
  

IOC's revenue losses (Rs/litre)
	June 1-4*	June 5-15#	June 16-30+
Petrol	21.43	10.84	13.79
Diesel	31.58	22.07	23.22
* Before fuel price hike, duty cuts # After fuel price hike, duty cuts + Projected

The higher price of the basket is projected to drive up the revenue loss from retail sales of the three companies to around Rs 690 crore per day in the second fortnight of this month from around Rs 620 crore per day in the first fortnight.

Since the RBI increased the cap on sales of oil bonds on June 11 to Rs 1,500 crore per day from Rs 1,000 crore per day on June 5, the share price of IOC on the BSE has increased 1.27 per cent while BPCL's share price has gone up by 1 per cent. HPCL's share price has dipped by 2.31 per cent.

IOC, which sells over half the fuel consumed by the country, has sold Rs 4,000 crore worth of oil bonds to the RBI since June 5, when the central bank said it would buy oil bonds from the companies, and pay them in dollars to help them buy crude oil.

"The liquidity situation has improved significantly, and this has reduced our borrowings," said IOC's finance director SV Narasimhan.

IOC, as also BPCL and HPCL, is selling the bonds at a premium. The RBI is buying the bonds at around 25 basis points higher than the price of other government securities. Previously these bonds were being sold at below market rates, said a senior IOC official.

The companies sell their bonds to the RBI whenever they need the money to buy crude oil. "We have to make payments for the crude oil in dollars. Whenever that requirement arises, we sell bonds to the RBI and get paid in dollars," said HPCL's finance director B Mukherjee.

The more readily available cash has also slowed these companies' borrowings, which had almost reached the limit approved by shareholders. IOC's borrowings now stand at around Rs 41,000 crore. "Since the RBI started buying our bonds, our borrowings have been much lesser," said the IOC official.

The three public sector companies together spend over $4.5 billion (around Rs 19,200 crore) per month to buy crude oil.

Half of the Rs 200 crore per day reduction in the under-realisation, following the fuel price hike and duty cuts on June 4, incurred by the oil marketing companies have been negated in just over 10 days as global oil prices have risen nearly 6 per cent since the fuel price hike.

Before the fuel price hike, the three companies were losing around Rs 800 crore per day which reduced to around Rs 600 crore after the government increased prices of petrol, diesel and cooking and cut duties on oil and oil products on June 4.