Government pays Rs12,000 crore cash subsidy to PSU oil marketing companies

19 Jan 2010

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The finance ministry has given the petroleum ministry Rs12,000 crore cash subsidy in order to compensate state-run oil marketing companies for selling fuel at below market prices.

Special secretary at the ministry of petroleum S Sundareshan today confirmed having received the subsidy and said that the money was already disbursed to the respective oil companies.

With oil companies like BPCL, IOC and HPCL expected to make massive losses of nearly Rs45,000 crore in the current financial year, the petroleum ministry had asked for a cash subsidy of Rs31,700 crore and the Rs12,000 crore cash subsidy given is less than half the amount the oil companies were seeking.

Sundareshan said that IOC was given Rs7,000 crore, while BPCL and HPCL were collectively given Rs5,000 crore.

Petroleum minister Murli Deora said that the finance ministry will reimburse the losses incurred by the oil majors in selling kerosene and LPG. Although the ministry has received Rs12,000 crore from the finance ministry, Deora said he will have to find out ways to get the remaining amount.

Petroleum and natural gas secretary R S Pandey said that the oil companies will be reimbursed for losses only for kerosene and LPG, despite the oil companies losing Rs4,360 crore in the October-December quarter alone on sale of fuel like petrol and diesel.
Earlier, the government had been issuing bonds to oil companies for selling oil at subsidised prices, but the government stopped the practice after the Reserve Bank of India stopped buying it due to the soaring fiscal deficit.

Unlike many other countries where the price of fuels sold locally is determined by the price in the international market, in India the state-run oil companies are forced to sell fuels at a highly subsidised rate even if the international prices of crude goes up.

This has resulted in the oil majors incurring heavy losses although the selling price is lower than the production or importing cost.

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