Bondos

The Petroleum Minister requested $6 billion in oil bonds from the Finance Ministry in the supplemental budget and was refused.

To save face the Minister said that oil subsides are not viable in the long run and that a formula will be worked out to pass “excessive cost” to the consumer through price increases above some level. What level and what formula?

The short story is that the borrowing demands of the government are catching up with it. The supplementary funding list recently submitted, $5 billion, included monies for food and fertilizer subsidies, the metro, Air India, and the National Calamity Fund, which may well be the oil policy, but no bonds for the oil marketing companies.

Ten year government bond yields are 7.51% with the march futures trading above 8.4%. The market expected that the oil bonds would be issued in December, and without them the oil marketing companies will post a loss for the quarter. When the ten year vaults past 8% enthusiasm for holding equities wanes.

Worse still is the implication that the government is up against its borrowing ceiling without a sensible plan, or clue, for the 75% of the countries oil requirement that is imported.

The supplementary budget request gives way to the budget to be announced in February which promises to be an exercise in anxiety, or, at the very least putting the arm on the World Bank to do more than recapitalize the banking sector.