Govt Plans Rs 20,000-Crore Payout To Oil Companies Hit By Rising Costs: Report

The oil ministry has sought a compensation of Rs 28,000 crore, but the finance ministry is agreeing to only about a Rs 20,000-crore cash payout

The oil companies will require some intervention either through price increases or government compensation to cover sustained losses, Bharat Petroleum Chairman Arun Kumar Singh had said last month. ( Image Source :Getty )

The government is mulling to pay nearly Rs 20,000 crore ($2.5 billion) to the state-run fuel retailers to partly compensate them for losses and keep a check on cooking gas prices, quoting sources, news agency Bloomberg said on Monday.

According to the sources privy to the development, the oil ministry has sought a compensation of Rs 28,000 crore, but the finance ministry is agreeing to only about a Rs 20,000-crore cash payout. The discussions are at an advanced stage but a final call is yet to be taken, the sources said.

IOCL, BPCL, and HPCL, the three biggest state-run retailers, which together supply more than 90 per cent of country’s petroleum fuels, have suffered the worst quarterly losses in years by absorbing record international crude prices. While the handout could ease their pain, it would add pressure to the government’s coffers that are already strained by tax cuts on fuels and a higher fertilizer subsidy to tackle mounting inflationary pressures.

According to the report, the government had earmarked oil subsidy at Rs 5,800 crore for the fiscal year ending March, while fertiliser subsidy was pegged at Rs 1.05 lakh crore.

These refining-cum-fuel retailing companies, which use more than 85 per cent of imported oil, benchmarked the fuels they produce to international prices. Those shot up after a global recovery in demand coincided with reduced fuel-making capacity in the US and fewer exports from Russia.

The state-run oil marketing companies (OMCs) are obligated to buy crude at international prices and sell locally in a price-sensitive market, while private players such as Reliance Industries have the flexibility to tap on stronger fuel export markets.

The OMCs will require some intervention either through price increases or government compensation to cover sustained losses, Bharat Petroleum Chairman Arun Kumar Singh had said last month.

India imports about half of its liquefied petroleum gas (LPG), generally used as cooking fuel. The price of Saudi contract price, the import benchmark for LPG in India, has increased 303 per cent in the past two years, while the retail price in Delhi was increased by 28 per cent, Oil Minister Hardeep Singh Puri said on Friday.

The three companies have also been holding down pump prices of gasoline and diesel since early April to curb accelerating inflation.