Date:14/05/2008 URL: http://www.thehindu.com/2008/05/14/stories/2008051456051200.htm

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Finance Ministry rejects oil bonds plan

Sujay Mehdudia

Oil companies were hoping it would help partially offset their massive under-recoveries

Murli Deora

NEW DELHI: Even as Petroleum and Natural Gas Minister Murli Deora ruled out an increase in fuel prices on Tuesday in the wake of skyrocketing international crude oil prices, the Finance Ministry “rejected” the Petroleum Ministry’s demand to issue oil bonds worth Rs. 44,000 crore to partially offset the massive under-recoveries.

The Finance Ministry’s stand has come as a “big setback” to the Petroleum Ministry, which was “forcefully petitioned” by the oil marketing companies (OMCs) to either go in for an immediate hike in motor fuel prices or issue oil bonds to save them from financial bankruptcy.

The Petroleum Ministry has projected the under-recoveries of the OMCs at Rs. 77,000 crore for 2007-08. This is likely to go up to Rs. 1,80,000 crore in the current fiscal due to a record increase in crude prices that have touched $126 a barrel.

“We asked for issuing 57.1 per cent oil bonds. The Finance Ministry does not agree with our contention and has asked us to re-work our figures. We have requested Finance Minister P. Chidambaram to issue as much as possible,” Mr. Deora said after meeting the Finance Minister.

He refused to elaborate on the discussions with Mr. Chidambaram but said they did not discuss increasing fuel prices.

Mr. Deora met Prime Minister Manmohan Singh on Saturday on the issue of oil bonds. He also met United Progressive Alliance chairperson and Congress president Sonia Gandhi last week, when it was made clear that no additional financial burden should be put on the poor.

Under the present policy, the government issues bonds for 42.7 per cent of the total under-realisation on fuel sale and another 33 per cent comes from ONGC, GAIL and OIL.