Oil marketing companies may be asked to cough up interim dividends once they receive the oil bonds to cover for their under-recoveries.
"The new oil bonds will help them cover their losses, which they say are on account of under-recoveries. In such a situation they will be in a position to pay interim dividends and dividends," a finance ministry official told Business Standard.
The petroleum ministry is, however, of the opinion that the companies are not in a position to pay interim dividends at the moment.
The finance ministry is also going to insist on an interim dividend from Oil & Natural Gas Corporation, which has gained as a result of an increase in international prices.
On September 7, while allowing the oil marketing companies to raise prices of petrol and diesel, the government agreed to issue fresh oil bonds to cover at least a quarter of their under-recoveries estimated at Rs 40,000 crore (Rs 400 billion) when international crude oil prices were hovering at $ 62 a barrel. Since then the price has decreased and is now trading at under $ 60 a barrel.
At the September price level, the increase in diesel prices by Rs 3 a litre and petrol by Rs 2 a litre will cover under-recoveries of Rs 5,000 crore (Rs 50 billion).
Increase in the retail prices of petrol and diesel and a drop in international crude prices has already helped oil marketing companies to reduce their second quarter losses. Indian Oil Corporation, the largest marketing company posted a net profit of Rs 949.72 crore (Rs 9.50 billion) during the second quarter as against a loss of Rs 54 crore (Rs 540 million) in the first quarter.
North Block officials said the finance ministry and the petroleum ministry are yet to decide on the size of the bond issue. The petroleum ministry has now proposed an issue size of over Rs 15,000 crore (Rs 150 billion), against its earlier projection of Rs 10,000-12,000 crore (Rs 100-120 billion). It also proposed an increase in the oil subsidy bill for the year from the present level of Rs 3,644 crore (Rs 36.44 billion), which has been turned down by the finance ministry. "We have asked the petroleum ministry to explain how the size of the issue has shot up drastically in the last couple of months," said an official.
The ministries hope to arrive at a consensus over the next few days before North Block discusses the modalities of the oil bonds with the Reserve Bank of India. The oil bonds will be part of the second supplementary demand for grants to be tabled during the winter session of Parliament later this month.
They said that various options were being discussed but if they were not found feasible, the government would go ahead and issue the bonds with a tenure of seven years carrying a market determined coupon.
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