India plans to pay about Rs 200 billion ($2.5 billion) to state-run fuel retailers, such as Indian Oil Corp., to partially compensate them for losses and keep an eye on cooking gas prices, according to people who are familiar with the matter.
The oil ministry has asked for rupees 280 billion in damages, but the finance ministry has agreed to pay out only about 200 billion in cash, the people said, asking not to be identified because the discussions are private. Talks are at an advanced stage, but a final decision has yet to be made, people said.
The three largest state-run retailers, which together supply more than 90 percent of India’s petroleum fuels, have suffered their worst quarterly losses in years as they absorb record crude oil prices.
While the benefit could ease their pain, it would put pressure on the state treasury, already strained by fuel tax cuts and a higher fertilizer subsidy to deal with mounting inflationary pressures.
Shares of state-run retailers gained, with Hindustan Petroleum Corp. Up 1.7 percent, Bharat Petroleum Corp. 1.2 percent and Indian Oil closed 0.1 percent higher, after falling as much as 0.8 percent earlier in the session.
The government had set aside an oil subsidy of 58 billion rupees for the fiscal year ending in March, while the fertilizer subsidy was pegged at 1.05 trillion rupees.
These refining and fuel retailers, which use more than 85 percent of imported oil, have compared the fuels they produce to international prices.
They skyrocketed after a global demand recovery coincided with reduced fuel production capacity in the US and less exports from Russia.
State oil companies are required to buy crude oil at international prices and sell it locally in a price sensitive market, while private players such as Reliance Industries Ltd. have the flexibility to tap into stronger fuel export markets.
India imports about half of its liquefied petroleum gas, which is generally used as a cooking fuel.
The price of the Saudi contract price, the import benchmark for LPG in India, has risen by 303 percent in the past two years, while the selling price in Delhi has risen by 28 percent, India’s oil minister, Hardeep Singh Puri, said on Sept. 9.
Representatives from the Indian Ministry of Finance and the Ministry of Oil declined to comment.
Companies have also kept petrol and diesel pump prices low since early April to curb accelerating inflation.
The oil companies will need some intervention, either through price increases or government compensation to cover ongoing losses, Bharat Petroleum Chairman Arun Kumar Singh said last month.
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)