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Oil bonds in pipeline

Calcutta, Sept. 13: The government is likely to issue bonds to public sector oil companies to compensate them for losses in the first quarter of the current financial year.

The companies took a hit when they sold petro products at prices less than the cost of crude in the international market. The total loss, because the government’s policy prevented oil companies from raising retail prices when crude turned dearer, squeezed oil majors’ bottomline by more than Rs 2,000 crore. Indian Oil Corporation (IOC) alone had to take a knock of over Rs 900 crore from the mismatch in global crude costs and retail price of oil at home. IBP Limited, the Calcutta based petro marketing company, has suffered a loss of over Rs 120 crore due to the anomaly.

Sources say the government, short of funds, is weighing the option of issuing bonds for a total amount of Rs 2,000 crore in favour of oil companies.

“Even if compensation is in the form of bonds, oil companies will be able to neutralise losses in their books. The government has admitted they had to suffer this loss although the oil sector was deregulated in April this year,” they added.

When the government will issue bonds, and at what rate of interest, is not clear. “If previous instances are a signal, the government may set the rate at 8 per cent.”

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