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FinMin offers to pay less than 50% of what OilMin seeks

Last updated on: January 14, 2010 15:13 IST

The finance ministry has offered less than half of the Rs 31,700 crore (Rs 317 billion) sought by the oil ministry to make up for revenue losses incurred by the state-owned retailers on sale of LPG and kerosene.

Petroleum Minister Murli Deora on Thursday met Finance Minister Pranab Mukherjee to seek compensation for the public sector oil firms for their losses but the meeting remained inconclusive.

"No decision was taken," Deora told reporters after the 75-minute meeting.

Sources said the main issue was how much of the revenue loss should the government bear.

The finance ministry feels that current year is not an 'exceptional' period when global oil rates have been at a moderate level and so the 2006-07 formula of the government picking up one-third of the revenue loss on fuel sales should apply.

Indian Oil, Bharat Petroleum and Hindustan Petroleum are projected to lose about Rs 45,000 crore (Rs 450 billion) on selling petrol, diesel, domestic LPG and kerosene below cost. The finance ministry is willing to meet one-third of this by way of either cash or bonds, they said.

The petroleum ministry on the other hand wants the government to honour the July 2009 commitment of making up for the entire revenue loss on domestic LPG and kerosene. As per the July understanding, the losses on petrol and diesel were to be made good by upstream firms like ONGC.

"We explained the under recoveries (revenue loss on fuel sales). Finance Ministry will now revert to us on the issue," Petroleum Secretary R S Pandey said.

Mukherjee was 'sympathetic' to the losses fuel retailers were incurring and appreciated the limited capacity upstream firms had to contribute to subsidy sharing, Oil India chairman N M Borah said.

Asked if the government compensation would be in the form of cash or oil bonds, Pandey said: "Most likely it will be cash."

Sources said the finance ministry was of the view that 2008-09 was an exceptional year when crude oil prices touched a record high of $147 per barrel, necessitating issue of Rs 71,292 crore (Rs 712.92 billion) worth of oil bonds to the three retailers.

The petroleum ministry estimates that Rs 31,700 crore of loss would be incurred on cooking fuel sale this fiscal and if this amount was not reimbursed the retailers should be given freedom to fix petrol prices while being allowed to gradually increase diesel rates.

Increasing fuel prices at the moment was ruled out because of prevailing high inflation rate, sources said.

The finance ministry has not issued any bonds or cash for the first three quarters leading to BPCL and HPCL to report net losses in the second quarter, while IOC barely made a profit.

HPCL reported a net loss of Rs 136.68 crore (Rs 1.366 billion), while BPCL posted a net loss of Rs 158.77 crore (Rs 1.587 billion). IOC made a marginal Rs 284.36 crore (Rs 2.843 billion) profit.

Deora had last month raised the issue with Prime Minister Manmohan Singh and the same again figured during a review meeting with Singh on the oil sector on Wednesday evening.

For the first nine months, oil bonds worth Rs 20,872 crore (Rs 208.72 billion) have been sought, they said.

IOC, BPCL and HPCL lost Rs 11,853 crore (Rs 118.53 billion) in revenues on not being allowed to raise LPG and kerosene prices in line with cost during April-September. An additional Rs 9,019-crore (Rs 90.19 billion) revenue loss was incurred in third quarter.

Deora had on at least two previous occasions written to Mukherjee and on December 21 met the prime minister for issuance of oil bonds but the finance ministry did not provide any sum towards this in supplementary demands of grant (extra spending) that it got approved from Parliament last month.

The three firms currently lose Rs 3.06 a litre on petrol, Rs 1.56 per litre on diesel, Rs 17.23 a litre on kerosene and Rs 299.01 per LPG cylinder.

Sources said under-recoveries or revenue loss on petrol and diesel amounting to Rs 4,003 crore (Rs 40.03 billion) had been compensated by ONGC, Oil India and GAIL India through price discounts on crude oil and products sold to retailers.

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