Pending issuance of the government oil bonds, the petroleum ministry has asked the finance ministry to allow deferment of excise duty payment by the three oil marketing companies ? Indian Oil, Bharat Petroleum, Hindustan Petroleum?for the months of September and October, without levy of interest and penalty.
The three OMCs have also sought a similar dispensation from the finance ministry towards the payment of the advance tax till their liquidity position stabilises. The three companies together pay Rs 3,500 crore a month as excise duty on the 6 th of every month. Deferment of the excise duty, as per the petroleum ministry, will provide them the much needed head room to manage their liquidity position.
The petroleum ministry has asked the finance ministry to continue this dispensation till the receipt of oil bonds and their timely liquidation through the special marketing operations, which currently has been withdrawn by the RBI.
The oil bonds for the fourth quarter of 2007-08 (Rs 14,956 crore) and for the first quarter of 2008-09 (Rs 24,408 crore) will materialise only towards the end of September, 2008 after obtaining Parliamentary approval.
In a letter to his finance ministry counterpart, petroleum secretary R S Pandey said, ?In case oil bonds are not received and liquidated by the OMCs till the end of October 2008, their credit limits would need to be enhanced by around Rs 14,000 crore to meet their working capital requirement. In case the deferment of excise duty payment is allowed in the months of September and October, 2008, the required enhancement in the credit limits of the OMCs will be reduced to Rs 7,000 till the end of October 2008.?
Alongside, following the extreme liquidity crisis surrounding the OMCs, the ministry has also asked finance ministry to ask the central bank?Reserve Bank of India to allow State Bank of India to take exposure on IOC, HPC and BPC and lend beyond the ?single borrower limit?. The petroleum ministry has assured both the finance ministry as also the RBI that OMCs would use this arrangement only in exceptional circumstances i.e, if faced with non-availability of funds from other banks.
?RBI may kindly advise SBI and the other banks to discuss and settle the issue of enhancement of credit limits with the OMCs at the earliest.?
?However, as the banks are themselves facig liquidity problems, RBI may also advise SBI to take additional exposure on OC, HPC and BPC beyond its single borrowers limit in case other banks are unable to address the OMCs liquidity requirements,? Pandey said in his letter to the finance ministry and the governor, RBI.
Pandey said that the tight liquidity position in the financial markets as a result of the cumulative hike in CRR of 1.5% has made it difficult for OMCs to avail of credit.
?Most of their current borrowings including foreign currency loans are ad-hoc and short term in nature and may not be renewed, on roll over basis, due to several factors including the recent downgrading of OMCs credit ratings, their worsening debt-equity ratios etc.
If left unattended, we may soon face a situation where the OMCs will be unable to pay for their imports,?
Pandey said.
The financial health of the OMCs was reviewed by the petroleum minister Murli Deora on August 19. The borrowings of the OMCs have increased to Rs 92,000 crore and in the absence of receipt of oil bonds, are expected to cross Rs 1,10,000 crore by the end of September, 2008.
The credit limit available to the three OMCs together are Rs 16,000 crore?including Rs 12,000 crore with IOC, Rs 3,000 crore with BPCL and Rs 1,000 crore with HPCL?will be exhausted within a month or so.