Petroleum Min steps forward to bail out oil cos

The Petroleum Ministry is facilitating credit of Rs 1.2 lakh crore to help bleeding oil companies ride over the current crisis. There will be pressure on the Finance Ministry to award SLR status to oil bonds. 

With under recoveries of state-owned oil companies being projected at USD 40 to 45 billion this financial year, sources say banks may not feel comfortable extending credit to them. And so the Petroleum Ministry is stepping in. Sources say talks are on with banks to facilitate credit of Rs 1.2 lakh crore.

Oil marketing firms, however, are not impressed. For instance, a senior official at Indian Oil Company says, such a measure will only help the company sustain its operations and will do nothing to fight the huge losses it is facing.
Oil marketing companies are losing Rs 450 crore per day, this when the Indian basket of crude was trading at USD 110 dollars.

On Friday, the Indian crude basket crossed the USD 120 a barrel, and oil firms say raising prices is the only solution to overcome the liquidity squeeze.

Oil bonds are also not helping OMC's either. These bonds are trading at a discount of nearly 9% and finance minister P Chidambram has in the past refused to give these bonds 'SLR' status. Moreover, the cabinet decision to increase oil bonds from 42% to 57% of under recoveries has still not been notified.

Crude prices are expected to touch USD 200 a barrel within a year and Oil Secretary MS Srinivasan today warned that if some drastic measures are not taken, India may go back to the days of the 'ration raj'. Free market principles will be a casualty of inaction.