Financial Daily from THE HINDU group of publications
Monday, Aug 29, 2005
Industry & Economy - Petroleum
Oil Ministry proposal for kerosene bonds rejected
New Delhi , Aug. 28
THE Petroleum Ministry may be required to do some fresh thinking on the mechanism to tackle the problem arising due to rising crude oil prices so that the burden is shared equitably by all the stakeholders the Government, the oil companies and the consumer.
The Finance Ministry has rejected the request of the Petroleum Ministry for issuing zero per cent interest kerosene oil bonds of the value equivalent to the under recoveries suffered by the public sector oil companies with a maturity period of three years.
According to sources, while rejecting the proposals the Finance Ministry is understood to be of the view that such bonds would neither enhance cash flows nor improve profitability of the bleeding oil marketing companies (OMCs). As per the Ministry it appeared to be only a financial engineering device, sources said.
Further, the Finance Ministry is also understood to have argued that maturity profile of existing Government debt would leave little room for accommodating liabilities of such magnitude. In addition, such a measure could substantially increase Government's gross market borrowing on redemption. It would also adversely affect the fiscal and revenue deficit containment targets, the Finance Ministry observed.
On account of the widening gap between the domestic retail prices of PDS kerosene and domestic LPG, on the one hand, and relentless rise in international oil prices on the other, coupled with the mismatch since 2004 between the international and domestic retail prices of petrol and diesel, the OMCs have suffered substantial under recoveries.
According to the Petroleum Ministry, the estimated under recoveries for the period April-June 2005 to OMCs was Rs 4,800 crore on PDS kerosene and domestic LPG, and Rs 4,900 crore on petrol and diesel. In the full year, 2005-06, the under recoveries are likely to exceed Rs 40,000 crore. The estimated under recoveries for 2003-04 on PDS kerosene and LPG was Rs 9,370 crore and in 2004-05 Rs 17,720 crore.
In view of the mounting under recoveries to OMCs and subsequent losses suffered by them, the Petroleum Ministry was suggesting that subsidies should be transparent and met directly from the Union Budget, sources said.
It may be recalled that the Government had notified the kerosene under public distribution system (PDS) and domestic liquefied petroleum gas (LPG) subsidy scheme 2002 for administering post-administered pricing mechanism (APM) subsidy on the two products.
In terms of the scheme, a flat rate of subsidy per selling unit was to be given to public sector OMCs equal to the difference between the cost price and the issue price per selling unit as on March 31, 2002. The OMCs were to adjust the retail selling prices of these products in line with international prices, ocean freight and inland freight. The Government has envisaged Rs 3,600 crore on this account in 2005-06.
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