Oil marketing companies have approached the petroleum ministry for an urgent solution to the rapidly ballooning subsidies on LPG and kerosene — while prices of both petrol and diesel have been raised several times over the past few months (petrol prices rose 15 per cent), those of LPG and kerosene have remained static.As a result, the subsidy on LPG, currently at Rs 100 a cylinder, has gone up by around a fourth with global prices rising from $220 a tonne in April to around $300 right now. And subsidies on kerosene, currently Rs 5 a litre, have gone up by around 15 per cent after OPEC prices flared up due to the fear of a full-fledged US attack on Iraq. All told, that means the total subsidy on these two fuels has gone up by over Rs 2,000 crore (if calculated on a full-year basis). Given that the total profits of all the three oil marketing firms is around Rs 2,500 crore, the firms have naturally pressed the panic button, asking the government to take a decision on hiking prices of these two fuels. A decision was to be taken on this last week, but was put off for political reasons.Under the Nirmal Singh formula adopted as part of the dismantling of the Administered Price Mechanism, the total subsidy on kerosene was to be 33 percent of the cost, while that on kerosene was to be 15 percent. Anything above this was to be passed on to the consumer in the form of a price hike, and the subsidy itself was to be borne by the general budget. Naturally, the oil firms are not expected to bear the burden of the hike in subsidies, and the government will make good the amount. What the oil companies are worried about, however, is what this is doing to their immediate liquidity, as there is still no indication from the government as to when they will be compensated for this. Also, with the government refusing to take a decision on hiking the prices of these two fuels, it is clear that with every passing day, the oil companies will be under even more pressure. With the oil companies under great financial stress, some of them have already begun selling off the oil bonds issued to them at a discount in order to raise cash.
