Says former Finance Minister.It is like postponing the problem for few years without looking for a Permanent solution. The oil sector is the largest tax contributor to the central exchequer, paying close to Rs 70,000 crore on account of customs and excise duties. This is apart from the dividend they shell out to their owner, the government, on their profits. The same oil companies, however, are dependent on the government to remain in the black. Although, pricing of petroleum products was 'decontrolled' in April 2002 with the dismantling of the administered pricing mechanism, the government regulates prices of all major fuel at the retail level.
Result: The consumer prices of motor fuels, petrol and diesel, and cooking fuels, LPG and kerosene, are way cheaper than the true market rates. This leads to huge losses for the oil companies. The government, on its part, issues bonds from time to time to compensate the oil companies for the losses they incur on sales of petroleum products at controlled prices.
So on the one hand, while the oil companies are writing out cheques to meet their tax and dividend obligations, on the other, they have to be bailed out through government bonds to remain profitable. But the bonds issued by the government fail to solve the oilcos' liquidity crunch as they often have to be sold at a discount. Further, oil companies can sell only 25% of the bonds in a given quarter, thus posing huge financial challenges for the companies.
Also, the bonds issued by the government have few takers in the secondary market given the yield rates . Then, the appetite for these bonds was particularly low among institutions as till recently the bonds were not SLR-eligible. Oil companies which have been totting up huge losses have managed to remain in the black thanks to the oil bonds. Losses on fuel sales have reached record levels and are expected to cross Rs 1,80,000 crore by the end of this fiscal.
Source :Economictimes
Result: The consumer prices of motor fuels, petrol and diesel, and cooking fuels, LPG and kerosene, are way cheaper than the true market rates. This leads to huge losses for the oil companies. The government, on its part, issues bonds from time to time to compensate the oil companies for the losses they incur on sales of petroleum products at controlled prices.
So on the one hand, while the oil companies are writing out cheques to meet their tax and dividend obligations, on the other, they have to be bailed out through government bonds to remain profitable. But the bonds issued by the government fail to solve the oilcos' liquidity crunch as they often have to be sold at a discount. Further, oil companies can sell only 25% of the bonds in a given quarter, thus posing huge financial challenges for the companies.
Also, the bonds issued by the government have few takers in the secondary market given the yield rates . Then, the appetite for these bonds was particularly low among institutions as till recently the bonds were not SLR-eligible. Oil companies which have been totting up huge losses have managed to remain in the black thanks to the oil bonds. Losses on fuel sales have reached record levels and are expected to cross Rs 1,80,000 crore by the end of this fiscal.
Source :Economictimes
