NEW DELHI: In a major relief for oil marketing companies (OMCs) facing huge under-recoveries due to soaring world oil prices, Finance Minister P. Chidambaram has agreed to finance their urgent working capital needs from the Oil Industry Development Board (OIDB) fund. This was one of the decisions taken at a meeting with Petroleum Minister Murli Deora where major issues relating to the oil exploration and market sectors were discussed at length.

In addition, Mr. Chidambaram has agreed in principle to provide sovereign guarantees for oil imports by the OMCs. This is expected to provide a cushion for the OMCs which have been facing difficulties in tying up funds for urgently-needed imports. It would also help these companies work towards the long term goal of making India an export hub for petroleum products by importing oil and processing it in domestic refineries.

Impetus to bidding

Indications are the Finance Minister may also provide exemption from service tax for core production and exploration activities in a bid to give a push to upstream activities in the hydrocarbons sector. Mr. Deora is understood to have pointed out that this would also give an impetus to bidding from the foreign oil majors for the latest round of the exploration licensing programme which has just been launched. The Petroleum Ministry will shortly be providing a list of the core industries involved in exploration and production to the Finance Ministry so that a final decision can be taken on this issue.

After the meeting, the Petroleum Minister told reporters that the first tranche of the Rs. 11,500 crore of oil bonds will be issued on Wednesday to the OMCs. The next tranche will also be issued by March 15. The non-SLR tradeable special securities amounting to Rs. 11,500 crore will carry an average coupon rate of 7.3 per cent. Three kinds of bonds — having maturity of three years, six years and nine years — will be issued in the first tranche. While bonds with three and six years of tenure will amount to Rs 2,000 crore each, those with nine years of maturity will be to the tune of Rs. 1,750 crore.

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