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The govt. of India (GOI) issues special oil bonds to govt. owned oil marketing companies as a share of their subsidies. What exactly are these oil bonds and how exactly do they compensate the oil marketing companies?
I will work out the answer to this question by using the financial statements of Indian Oil Corp. (IOC) for 2007-08.
IOC makes a loss selling petroleum products due to govt. restrictions on pricing. The govt. of India compensates this loss by issuing special oil bonds.
IOC shows these bonds as income on its P&L (the IOC P&L for 2007 - 2008 shows an income of Rs.13,943 CR this way), thus converting the loss into a profit.
IOC also shows these bonds as investment on its balance sheet (Schedule G of IOC balance sheet for 2007 - 2008 shows investment worth Rs. 14,308 in these GOI special bonds). This means that without paying a penny for these bonds, IOC has invested in these GOI bonds! If you think about it, the real investment is the losses IOC incurred to oblige the GOI.
Now, if IOC just sits on these bonds, it will get a cash flow (around 7% - 8%) from GOI by way of interest payment on these bonds. Also upon maturity, the GOI will have to redeem these bonds from IOC (maturity periods are anywhere from 2009 to 2026 as per Schedule G). i.e. upon maturity the GOI has to cough up cash compensation for the losses IOC has incurred in 2007 - 2008!
Instead, what IOC does is, it sells these bonds in the secondary bond market to mutual funds, insurance companies and other such financial institutions (http://www.thehindubusinessline.com/2008/05/02/stories/2008050250780600.htm). Thus, the bonds are converted into hard cash (Schedule G says IOC made Rs. 6,503 Cr this way in 2007- 2008). This is how IOC gets hard cash to compensate for its losses immediately. (Of course, upon maturity the GOI has to still pay cash to whoever holds these bonds at that time).
The interesting part is this: GOI issues bonds without actually borrowing from anybody. Does this run counter to the very definition of a bond? Not really.
The GOI has issued bonds to IOC without directlyborrowing any money from IOC. The borrowing is indirect - IOC made a loss to oblige the GOI and that is akin to the GOI borrowing from IOC and hence the GOI issues these bonds to IOC. This is the crux of the matter.
Bottom line is, the oil bond is a GOI bond and hence is a govt. debt which has to be repaid some day. Interestingly, this debt stays off-budget and does not reflect in the revenue or fiscal deficit of the GOI (http://www.business-standard.com/common/news_article.php?leftnm=10&bKeyFlag=BO&autono=323750)!. This is because these companies are anyway owned by the government.
What else can I help you with?
How do bonds work with interest rates?
Bonds work with interest rates in a way that when interest rates go up, bond prices go down, and vice versa. This is because bond prices and interest rates have an inverse relationship. When interest rates rise, new bonds are issued with higher yields, making existing bonds with lower yields less attractive, causing their prices to decrease. Conversely, when interest rates fall, existing bonds with higher yields become more valuable, leading to an increase in their prices.
How does the Federal Government borrow money?
The federal government borrows money from issuing Treasury bonds. The bonds are bought by people, businesses and other government agencies. The bonds work by people lending money to the government who in turn pays back that money plus interest.
What three things work together to make the southern economy?
Cotton, Slavery, and Oil
What is the best oil and gas company to work for in Canada?
It is definitely ExxonMobil for technical people (engineers and geos).
Difference between Advance Payment Guarantee and Performance Bond?
Contract Performance Bonds - Contractors will usually be asked to provide a performance bond for up to 20% of the contract price to protect the employer.Advance Payment Bonds - In circumstances where advances are being given before work is carried out or material delivered an advance payment bond protects the party making the advance recover the funds if the work is not completed or materials are not supplied.
What oils contain chemical double bonds?
Unsaturated in chemistry means that there are either carbon-carbon double bonds or triple bonds present in the compound. The oil is usually taken to be a naturally occuring vegetable oil which may be fat, a fatty acid- the term is very broad. In these there are only carbon-carbon double bonds. The oil could also be a mineral oil, - i.e. an alkene or alkyne.
What type of bond does oil have?
Oil typically consists of nonpolar covalent bonds. These bonds are formed when carbon and hydrogen atoms share electrons, resulting in a stable arrangement. The nonpolar nature of the bonds contributes to oil's hydrophobic properties.
How do you turn oil into energy?
burning oil causes bonds to break between the oil's molecules which releases energy
Which type of bond is found in canola oil but not in butter?
Double bonds are found in canola oil but not in butter. Canola oil is rich in unsaturated fats, which contain double bonds in their chemical structure. On the other hand, butter is high in saturated fats, which do not contain double bonds.
What type of bonding does an unsaturated oil contain?
An unsaturated oil contains covalent bonding, specifically double bonds between carbon atoms in the fatty acid chains. These double bonds create kinks in the chain, giving the oil a liquid consistency at room temperature.
what kind of potential energy does oil have?
Oil has chemical potential energy, as it stores energy in its molecular bonds. When these bonds are broken through combustion, the energy is released in the form of heat and light.
What kind of bonds hold the components of an oil molecule?
ester linkage
Do palm oil and coconut oil contain more double bonds?
Both of them are just very similar I think.
What two oils are classified as saturated fats because they lack double bonds?
palm oil and peanut oil
What are some household items that contain non-polar covalent bonds?
Some household items that contain non-polar covalent bonds are cooking oil, plastic containers, and gasoline. These substances consist of molecules with similar electronegativities, leading to shared electron pairs and non-polar covalent bonds.
An oil with one or more double bonds in the fatty acid?
An oil with one or more double bonds in the fatty acid is known as a polyunsaturated oil. This type of oil is liquid at room temperature and is considered heart-healthy because it can help lower cholesterol levels when consumed in place of saturated fats. Examples include soybean oil, corn oil, and sunflower oil.
What is the difference between a fat an oil?
fat is referred to Animal fat/ saturated fat=no double bonds between carbon chain while oil is referred to plant or fish fat(oil)/ unsaturated fat = it contains double bonds between carbon chain.
