Government decided to pay Rs 8,000 crore to oil PSU's

Govt to pay Rs 8k-cr subsidy to oil firms


(Courtesy: The Economic Times, New Delhi, February 01, 2011)



The government has decided to pay Rs 8,000 crore to state-run fuel retailers to compensate them for selling diesel, cooking gas and kerosene below market rates.



The grant will help IndianOil, Hindustan Petroleum Corp and Bharat Petroluem Corp report a net profit in the third quarter of 2010/11. "The government will issue compensation by (Monday) evening," oil minister S Jaipal Reddy said. ET was first to report that top oil marketing firms, facing mounting losses for selling fuel below cost, were forced to postpone announcing their quarterly earnings scheduled last week.



IndianOil, Hindustan Petroleum Corp and Bharat Petroleum Corp, which run over 90% of India's 40,000 petrol pumps, face a combined net loss of about Rs 3,000 crore in the December quarter. The three marketing companies — IOC, BPCL and HPCL — are expected to announce their Q3 results by February 10. IOC, the largest by volume, has received Rs 4,442 crore compensation while BPCL and HPCL have got Rs 1,810 crore and Rs 1,748 crore, respectively, government officials said.



The Rs 8,000 crore is 80% of the compensation demanded by the oil ministry, a senior oil company executive said. "But it is sufficient to save us from reporting net losses in Q3 for none of our faults," he said requesting anonymity. The government artificially keep retail prices of diesel, cooking gas and kerosene low by forcing state-run oil marketing companies to hold price-line despite a surge in global crude oil prices. The country meets over 70% crude oil requirements through imports.



For the current fiscal year, the finance ministry has so far agreed to reimburse only one-third of the estimated revenue loss of Rs 72,000 crore, or about Rs 24,000 crore but oil ministry officials said this would be inadequate.



"The three oil marketing companies are not in a position to bear more than Rs 12,000 crore revenue loss in 2010-11. The government has to compensate a shortfall of about Rs 36,000 crore in the current fiscal," an official added. The finance ministry had released Rs 13,000 crore to compensate the three oil companies in the first half of the current financial year. Oil minister has already announced that ONGC and other upstream companies will contribute Rs 24,000 crore to subsidise fuel in the current financial year.