Cash-strapped oil firms may sell bonds

With oil prices above the $80 a barrel mark, government oil marketing companies (OMCs) are selling oil bonds to meet their working capital needs.

The three companies — Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) — account for over 90 per cent of the country’s retail petroleum products market.

IOC, the largest, sold around Rs 1,200 crore worth of bonds last week. Senior IOC official confirmed the transaction.

“Rising crude oil prices are increasing our working capital needs. Underrecoveries could increase next year if fuel prices are not raised, as the average crude oil price next year is likely to be higher from this year’s $70 a barrel,” he added.

A dealer with a private bond house said besides the rising pressure of underrecoveries, these companies might be hit by the new lending rate regime from July one. Under the system, banks will use a base rate to price loans. They won’t be allowed to lend below this rate. Earlier, banks could lend money at rates lower than their benchmark prime lending rates.

The Indian crude basket yesterday touched an 18-month high of 84.28 a barrel. India’s oil basket has averaged $83.46 a barrel so far this month, compared with $78.02 in March.

The OMCs received bonds worth over Rs 20,000 crore from the government early last year as compensation for selling cooking gas and kerosene below market prices.

The three OMCs currently lose Rs 6.50 on every litre of petrol and Rs 5.50 on every litre of diesel that they sell. The companies will now be compensated in cash. The OMCs together lost around Rs 45,000 crore in the previous financial year. Of this, upstream oil companies — Oil and Natural Gas Corporation, Oil India and GAIL— paid them around Rs 15,000 crore.

At an average price of $68 a barrel, the underrecoveries of HPCL, BPCL and IOC are pegged at Rs 43,000 crore for 2009-10 and Rs 62,000 crore in 2010-11 (with average price at $75 a barrel).