NEW DELHI, Aug 11: The government is close to deciding on the modalities for the 10-year Rs 15,500 crore oil bonds for bridging the oil pool deficit.

Highly-placed government sources said that at a meeting on Monday, attended by senior officials of the petroleum and finance ministry, various permutations and combinations on the crucial issues relating to yield on the bonds and the lock-in period were discussed, but no decision could be taken. Sources further revealed that the various options would be placed before the finance minister P Chidamabram for firming up the modalities for the oil bonds.

It was further learnt that, while the petroleum ministry officials insisted on a yield rate of 10.5 per cent on the bonds, the finance ministry was of the opinion that 10 per cent would be good enough.

The other point of contention was the lock-in period. The finance ministry was of the opinion that there should be at least three-year lock-in period for the bonds to prevent any adverse impact on monetary expansion. This, however, was not agreeable to the Petroleum Ministry which wanted the companies be allowed to sell these bonds to raise funds without any restrictions. These oil bonds will be issued to the state-owned oil firms, but the finance ministry will be have to organise payment of interest from the general budget and principal on the maturity.

The oil pool deficit, it might be mentioned, has grown tremendously because of the inability of the government to take a decision on increasing the oil prices. The oil bonds is being considered as an option to temporarily ease the situation by passing the burden to future budgets.

In the short run, the oil bonds would help the oil companies to tide over the liquidity problems which have restricted their ability to undertake imports.The major oil companies had earlier suggested that either they should be given tax-free bonds or government securities yielding 11 per cent to 12 per cent interest. They have also sought easy liquidity and marketability of these securities so that they can be used as real assets by these companies. It was also suggested that the procedure followed for the issue of securities will be similar to what the government did for bank recapitalisation. The oil pool account will first be given funds equivalent to its dues to the oil companies; these companies will then be required to reinvest the money in government bonds.