05 Jan 2009;economictimes.indiatimes.com:Rajeev Jayaswal:NEW DELHI: The government is working on a bailout package to prevent its three blue chip oil companies ”Indian Oil, Bharat Petroleum and Hindustan Petroleum" from closing 2008-09 in the red. The package, which is currently being worked out between the finance and petroleum ministries, proposes to provide additional oil bonds of Rs 30,000 crore to the oilcos to compensate them for losses incurred on fuel sales at government-controlled prices, a government official in the know said. According to the proposal, the government may issue bonds worth Rs 30,000-31,000 crore in the current fiscal that will absorb the OMCs entire loss including their earlier contribution of Rs 21,957 crore in the first half (H1) towards fuel subsidy. Upstream companies Oil & Natural Gas Corporation (ONGC) and Oil India (OIL) share may also be restricted to Rs 30,000 crore, most of which was already paid in H1. The total subsidy for 2008-09 is estimated at around Rs 1,06,000 crore. A proposal of the oil ministry to absolve the three public sector oil marketing companies (OMCs) from sharing underrecoveries is under consideration, an official in the finance ministry, on conditions of anonymity said, It is unjustified to ask loss-making OMCs to share underrecoveries. The three OMCs have, for the first time, reported a combined loss of Rs 14,431 crore in the first half of 2008-09. Underecoveries are losses suffered by oil companies for selling fuel at government controlled prices that do not cover costs. If the proposal is accepted, the government may have to issue additional oil bonds of worth Rs 30,000 in 2008-09. It has already sanctioned about Rs 45,000-crore oil bonds in H1. The government gives oil bonds to the state-run OMCs to partly compensate their losses for keeping retail prices of four fuels below market rates. The compensation was based on a burden sharing formula approved by the Cabinet on October 11, 2007 while extending fuel subsidy schemes up to April 1, 2010. According to the formula, 42.7% of OMCs total underrecoveries was to be borne by the government in the form of oil bonds and one-third of the total underrecoveries was to be shared by upstream companies. Due to an unprecedented jump in crude oil prices, the formula was later abandoned. The crude oil prices had peaked at $147 a barrel in mid-July 2008. Currently, global crude oil prices are hovering between $40 and $45 a barrel. The average price of the country crude oil imports (the Indian basket) has been $40.82 a barrel in December which was about $10 a barrel lower than the November average. The average crude oil import price in the first three quarters was $96.51 a barrel compared to $79.25 a barrel in the same period the previous year.
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