India may offer $2.5 billion to retailers affected by oil prices
According to people familiar with the matter, India plans to pay around 200 billion ($2.5 billion) to state-run fuel retailers such as Indian Oil Corp, to partially compensate them for losses and for cooking gas. prices can be controlled.
The oil ministry has sought a compensation of Rs 280 billion, but the finance ministry is only agreeing to pay Rs 200 billion in cash, the people said, asking not to be identified because the discussions are private. People said that the talks are in the final stages but a final decision is yet to be taken.
The three largest state-run retailers, which together supply more than 90 per cent of India’s petroleum fuel, suffered their worst quarterly losses in years by absorbing record international crude prices.
While this handout may ease their pain, it will put pressure on the government exchequer which is already hit by tax cuts on fuel and high fertilizer subsidies to deal with rising inflationary pressures.
After falling 0.8 per cent earlier in the session, shares of state-run retailers edged up, with Hindustan Petroleum Corp up 1.7 per cent, Bharat Petroleum Corp 1.2 per cent and Indian Oil up 0.1 per cent, closing.
The government had set oil subsidy at Rs 58 billion for the financial year ending in March, while fertilizer subsidy was pegged at Rs 1.05 trillion.
These refining-cum-fuel retailing companies, which use more than 85 percent of imported oil, benchmarked the fuel produced by them at international prices.
Those with reduced fuel-making capacity in the US and fewer exports from Russia shot up after a global recovery in demand.
State oil companies are bound to buy crude at international prices and sell locally in a price-sensitive market, while private players such as Reliance Industries Ltd have the flexibility to tap into the strong fuel export markets.
India imports almost half of its liquefied petroleum gas, which is commonly used as a cooking fuel.
Saudi contract price is the import benchmark for LPG in India increased 303 per cent in the last two years, while the retail price in Delhi increased by 28 per cent, India’s Oil Minister Hardeep Singh Puri said on September 9.
Representatives for India’s finance ministry and oil ministry declined to comment.
Companies are also restricting pump prices of petrol and diesel from the beginning of April to check the rise in inflation.
Bharat Petroleum Chairman Arun Kumar Singh said last month that oil companies would need some intervention, either through price hikes or government compensation.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)