Government has not allowed Indian Oil, Bharat Petroleum and HPCL to raise fuel prices in line with cost and instead compensates half of their revenue losses through oil bonds.
"As a consequence of large under-recovery on fuel sales... the borrowings have increased at an alarming rate," HPCL Chairman and Managing Director Arun Balakrishnan wrote to the Petroleum Secretary earlier this month.
HPCL's borrowings have risen from Rs 2,185 crore as of March 2005 to about Rs 25,000 crore currently and the company has exhausted its approved borrowing limits with banks.
The company is projected to lose about Rs 33,000 crore on sale of petrol, diesel, domestic LPG and kerosene this fiscal as against Rs 16,231 crore in 2007-08.
Borrowings rose because there was a delay in issuance of bonds for fourth quarter of 2007-08 and Q1 of 2008-09 amounting to about Rs 8,500 crore. During this period, prime lending rate went up from 12.5 per cent to 13.75 per cent.
"There is thus an urgent need to compensate HPCL for these losses arising out of the control of selling prices of sensitive petroleum products," he wrote.
Balakrishnan demanded that PSU banks be asked to lend money to it at a cap of 10 per cent interest rate. Besides, RBI should restart its Special Market Operations so that oil bonds can be sold on allotment.
"In case SMO scheme is not revived, LIC or ONGC may be kindly requested to buy the bonds at face value," he said.