No fuel price hike for now, compensation in cash likely

The govenment has yet again deferred a decision on compensation to oil marketing companies, IOC, HPCL and BPCL who are running up huge losses with global crude oil prices firming up while retail fuel prices remain unchanged.

Globally crude oil prices are ruling at about $80 a barrel and is likely to remain around this region. The finance and petroleum ministry have a diffrence of opinion on the amount of compensation. The petroleum ministry had asked for a compensation of Rs 20,000 crore for the three quarters . Estimates are that losses will be up to Rs 45,000 crore by end of this fiscal if crude oil prices remain at the current region.

All the oil companies are set to post losses in the third qurater if the compensation does not come in by then. The finance minister is not interested in giving bonds due to the pressures on fiscal deficit. On the other hand, a price hike looks unlikely as of now, as it would add to inflation. So the government is left with a hobson's choice between price hike and oil bonds.