The finance ministry (MoF) is under tremendous pressure from the petroleum ministry to revive the special market operation (SMO) scheme of the Reserve Bank of India. Under the SMO scheme, state-owned oil marketing companies were able to sell oil bonds to the RBI, which in turn gave foreign exchange to these companies to buy crude oil from the international market.

The RBI had, in its credit policy review on July 29, ended the SMO of giving the oil marketing firms?Indian Oil, Bharat Petroleum and Hindustan Petroleum?the foreign exchange to buy crude oil in exchange of oil bonds.

The three state-run retailers are given oil bonds by the government to compensate them for about a half of their revenue loss on the sale of petrol, diesel, domestic LPG and kerosene. The bonds, if sold in the open market, fetch a discount and the RBI?s SMO was almost given at par value.

?We have taken up the issue with the ministry of finance. In no way we can accept a situation that the SMO is not there,? said S Sunderesan, additional secretary, ministry of petroleum and natural gas.

IOC, BPCL and HPCL are faced with a huge liquidity crunch, due to rising differential between the price realised and the cost of production. Also, the finance ministry has failed to issue them oil bonds to compensate for losses in the January-March and April-June quarters.

?There have been some reports of a shortage of diesel and restrictions on the issue of new LPG connections. This is essentially due to liquidity problems?, he said, adding that the issue had been taken up at the highest level and arrangements were being made to ensure adequate liquidity.Liquidity problems are also coming in the way of the huge capex plans drawn by the oil marketing firms. The IOC chairman had, last week at a press conference, stated that IOC was not procuring new cylinders and is going slow on the release of new LPG connections.

Sunderesan said the ministry has also approached the MoF for raising the borrowing limits of the three companies. ?IOC needs Rs 10,000-12,000 crore and HPCL and BPCL Rs 2000-3000 crore till September-end when we expect the bonds for previous two quarters to be issued.?

Bonds can be issued only after Parliament passes supplementary demands of grants. The petroleum ministry has sought oil bonds worth over Rs 50,600 crore to partly compensate state-run companies for selling fuel below the cost during the first half of 2008 calendar year.

The ministry has sought Rs 14,956.17 crore as bonds for IOC, BPCL and HPCL for the last quarter of 2007-08, and an additional Rs 35,672.70 crore for the first quarter of 2008-09, officials said.

For the 2007-08 fiscal, the total revenue loss on the sale of petrol, diesel, cooking gas and kerosene was Rs 70,579 crore. Of this, 50 % is to be met through the issue of oil bonds and during April-December 2007 bonds worth Rs 20,333.33 crore have been issued and the ministry has now sought Rs 14,956.17 crore for the January-March period. For the April-June quarter, the revenue loss has been estimated at Rs 51,922.70 crore.

Rising crude prices push oil import bill 53.4%

Rising crude prices have pushed up India?s oil import bill by 53.4 % to $ 9.03 billion in June this fiscal. The country imported oil worth $5.89 billion in the same period a year ago. For the April-June quarter of 2008-09, oil imports grew by 50.2 % to $25.52 billion from $16.99 billion in the corresponding period last year, official data released on Friday said. It was largely due to oil imports that India?s trade deficit widened by 41.7% to $30.42 billion in the April-June period. The Indian crude basket for the April-June quarter this year, stood at $118.50 per barrel while it was $77.25 per barrel last year. International crude prices are currently stand at $123.35 a barrel in the Asian market, off from a record high of $147 a barrel seen last month.