OMCs seek govt nod to pay ONGC, OIL in oil bonds

Written by Anupama Airy | New Delhi, May 18: | Updated: May 19 2008, 06:39am hrs
Facing a severe liquidity crisis, the three state-owned oil-marketing companies, Indian Oil, HPCL & BPCL,want to pay ONGC & Oil India Limitedtheir crude suppliersin oil bonds. The three companies are in discussions with the government for a nod to transfer oil bonds, being issued to them, to ONGC & OIL as payment for crude oil purchases.

The countrys annual crude oil production of around 26 million tonnes per annum by ONGC (23 mtpa) and OIL, is currently being sold to IOC, BPCL & HPCLand some to MRPL. Officials said therealisation of ONGC from the three OMCs, at an average rate of less than $50 a barrel after discounts, would be close to Rs 45,000 crore during 2007-08.

While HPCL said it was in discussions with the petroleum ministry on the oil bonds transfer issue, IOC brass said they have already decided to implement this mechanism.

On whether this will require the governments approval, IOCs chairman & managing director Sarthak Behuria said, There is no need to take permission on this issue. Do we have a choice OMCs are facing a severe liquidity crisis and in order to fulfill our financial obligations, we are left with no choice but to pay for crude oil purchases (from ONGC & OIL) by transferring oil bonds.

Asked what if ONGC refuses to accept this arrangement,

Behuria said, Then they (ONGC/OIL) can choose to stop supplying crude to us, as we have no options left. At least 50% of the payment for crude purchases should be settled by way of transferring oil bonds.

HPCL chairman Arun Balakrishnan has written to the petroleum ministry, on May 9, regarding transfer of oil bonds at face value to ONGC & OIL.

ONGC, however, is not very happy with this arrangement. Asked to comment, chairman & managing director RS Sharma said, We are worried about this issue, as ONGC is already contributing heavily towards sharing the under-recoveries burden of the OMCs. The issue is still under discussion.

Another senior official said the proposed transfer of oil bonds to ONGC, if implemented, will only be a short-term solution and may even create a liquidity problem for ONGC. The only answer to the ever-growing under-recoveries, he said, is to let OMCs increase the retail price of auto fuels.

HPCL has also told the ministry that its current borrowings have already reached the level of Rs 17,400 crore against the total limits of Rs 21,500 crore available with banks. At the current level of prices of crude & its products, HPCL would exhaust its borrowing limits in around 45 days.

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