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12-Feb2013

Govt to pay additional cash subsidy of Rs 25,000 crore to OMCs

In a move to provide some relief to the state-owned oil marketing companies, the government will pay Rs 25,000 crore additional cash subsidy to state-owned fuel retailers for part of the revenue they lost on selling diesel, domestic LPG and kerosene below cost this fiscal. In the October-December quarter, Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) lost Rs 39,268 crore in revenue for selling fuel at government controlled rate.

The finance ministry in this regard has issued a 'comfort letter' to IOC, BPCL and HPCL sanctioning Rs 25,000 crore. Of this, IOC would get Rs 13,474.56 crore, BPCL Rs 5,987.25 crore and HPCL Rs 5,538.19 crore. The oil companies will account this 'comfort letter' as receivables to post decent third quarter earnings, whereas actual cash will flow only after Parliament approves supplementary demands for grants or additional spending. 

Earlier, the government has released Rs 30,000 crore subsidy. With the latest sanction the government has met about 44% of the Rs 124,854 crore revenue the three firms together lost on selling auto and cooking fuel below cost during the April-December period this fiscal. Currently, oil companies lose Rs 9.22 a litre on diesel, Rs 31.60 per litre on kerosene and Rs 481 on every 14.2-kg LPG cylinder, thereby losing Rs 443 crore per day of sale of the three fuels.

Normally, the finance ministry pays cash subsidies to state oil retailers while state-run upstream companies - ONGC, OIL and GAIL India - sell crude oil and products like LPG products at a discount. Upstream companies have till now paid Rs 45,000 crore in fuel subsidy.


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