Cash-strapped oil firms seek $4-bn forex loan from RBI

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New Delhi, Aug 25: India’s three state-owned oil marketing companies—Indian Oil, Bharat Petroleum and Hindustan Petroleum—have asked the government for massive foreign exchange support to finance their burgeoning credit needs. The companies together have sought $4 billion (roughly Rs 16,000 crore) as a direct foreign exchange loan from the RBI to partially replace "distress borrowings".

The request for the loan comes at a time when both global and domestic credit rating agencies have downgraded the three firms, making debt costlier for them to raise. The companies have informed the oil ministry that if the foreign exchange loan does not materialise, it could disrupt the country’s import of crude oil. The loan sought is big—just $1 billion short of the proposed global investment body that the government has been mulling for some time.

The public sector oil marketing companies have been issued oil bonds for the first quarter worth Rs 24,408 crore ($6.1 billion) to pay for their under-recoveries. But these will be released only in October after parliamentary vote. The foreign exchange loan will prove far less costly for the oil marketing companies than bank lending rates and, if approved, would be the largest deployment of the country’s reserves so far.

The finance ministry and the government would have to decide if the loan could be considered an investment to improve the oil companies’ finances or would be tantamount to current expenditure. The companies are suffering the impact of massive rises in crude oil prices in the international market that they cannot pass on to consumers through retail prices. They also have the additional burden of selling LPG and kerosene at a massive subsidy.

Borrowings by the three oil companies have risen substantially from Rs 71,080 crore as on June 30, 2008 to Rs 92,200 crore by August 14, 2008, an increase of almost 30%. The companies’ financial situation had improved in June when RBI rung in the facility of special market operations, under which the oil bonds were made more attractive for banks to hold. But that facility was withdrawn on July 24, 2008.