Finmin offers to pay 1/3rd of oilcos' demand

NEW DELHI: The finance ministry is unwilling to pay the entire Rs 31,700 crore demanded as compensation by the petroleum ministry on behalf of the state-owned oil companies — IOC, BPCL and HPCL — for selling cooking gas and kerosene below cost in the current financial year.

Finance ministry wants to pay only one third of the revenue losses of the three oil companies on the sale of the two cooking fuel as per a subsidy-sharing formula that worked till 2007-08 , a senior oil ministry official said after a meeting between oil minister Murli Deora and finance minister Pranab Mukherjee on the issue.

“No decision was taken... We have not reached any finality on the issue,” Mr Deora said after the meeting.
The oil companies are expected to lose about Rs 45,000 crore in 2009-10 for selling petrol, diesel, kerosene and diesel below market rates.

Oil ministry is demanding a 100% compensation for under-pricing cooking gas and kerosene from the finance ministry as per a cabinet decision taken in July 2009.

The subsidy-sharing formula, which equitably divided the subsidy burden between the three stake holders — the government, state-owned upstream companies such as ONGC and the three oil retailers — was abandoned in 2008-09 due to unprecedented rise in global crude oil prices.

The government gave 100% compensation in the form of oil bonds to the three oil companies on sale of kerosene and cooking gas in the previous financial year. The finance ministry says that that global crude oil prices remained moderate in the current financial year so the government should go back to the 2006-07 subsidy-sharing formula. After touching a nearly $85 a barrel, crude prices have moderated over the last few days to below $80 a barrel. They are still higher than the average $68 for the current fiscal to which current retail price are benchmarked.