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PSU oil retailers to get Rs 3,000 cr more govt subsidy

The government agrees to give an additional Rs 3,000 crore to them to make up for part of revenue they lost on sale of fuel below cost.

twitter-logoPTI | October 30, 2010 | Updated 13:54 IST

In a boost to state-run oil marketing companies, the government has agreed to give an additional Rs 3,000 crore to them to make up for part of revenue they lost on sale of fuel below cost.

"I am told that Ministry of Finance has released an additional Rs 3,000 crore in subsidies to oil marketing companies," Oil Secretary S Sundareshan told reporters on the sidelines of a pre-event of the Petrotech 2010 oil and gas conference.

Oil Minister Murli Deora had on Friday met Finance Minister Pranab Mukherjee seeking hike in cash compensation for state-run oil companies, which lost over Rs 31,000 crore on selling fuel below cost in the first half of this fiscal.

With the additional dole out, Indian Oil Corp (IOC), Bharat Petroleum and Hindustan Petroleum will get a total of Rs 13,000 crore in cash to make up part of their revenue loss, he said.

The Oil Ministry had been asking Finance Ministry to make up for 50 per cent of the revenue loss as the retailers cannot absorb more than Rs 6,000-7,000 crore loss in the entire financial year.

The three firms lost Rs 31,367 crore in revenues during the April-September period on selling diesel, domestic LPG and kerosene below cost.

This includes Rs 2,227 crore they lost on selling petrol below cost till June 25 when its pricing was freed from the government control.

Of this revenue loss, upstream oil firms Oil and Natural Gas Corp (ONGC), GAIL India and Oil India will make up for Rs 10,456 crore and about Rs 10,000 crore had previously been committed by the government by way of cash compensation.

About Rs 8,000 crore of unmet revenue loss will be dealt with together with the under recoveries the oil companies will incur in the second quarter of the current fiscal, Sundareshan said.

"This is not final settlement," he said, adding the final compensation to the fuel retailers will be decided at the end of the fiscal.

The government on June 25 freed petrol price from its control resulting in a hike of Rs 3.50 per litre.

Rates have subsequently been raised twice by almost a rupee, in step with rise in the international rates. Petrol now costs Rs 52.55 a litre in Delhi.

Diesel prices were raised by Rs 2 per litre on June 25, and it was stated then that they will be gradually freed.

But deregulation of diesel prices has been put off for now as the move would mean a further increase in the price by Rs 2.87 a litre. Diesel currently costs Rs 37.71 a litre in Delhi.

In June, the government had also raised domestic LPG price by Rs 35 per 14.2-kg cylinder and kerosene rates by Rs 3 per litre.

Despite these hikes, state fuel retailers lose Rs 16 on sale of every litre of kerosene, and Rs 188 per LPG cylinder, an industry official said.

S Sundareshan said that the government is targeting sale of 10 per cent of its holding in IOC through a follow-on public offer in January 2011 and 5 per cent in ONGC in March.

The additional dole out "is a very, very good message for the disinvestment of IOC and ONGC," he said.

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