Govt may give cash subsidy to oil firms

Oil secretary said,no decision has been taken on the quantum of compensation.

State oil companies may get cash instead of oil bonds as compensation from the government for selling fuel at below market prices,the oil secretary said on Thursday.

“Most likely it (subsidy) is going to be cash,” R.S. Pandey said after a meeting with Finance Minister Pranab Mukherjee.

He said no decision had been taken on the quantum of compensation to be given by the finance minister.

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“Discussions were held and we hope to hear from them soon,” Pandey said.

The oil ministry had sought Rs 200 billion ($4.4 billion) of bonds for state-run firms as compensation for 2009/10,following an upward swing in global crude prices,S. Sundareshan,the No. 2 official in the oil ministry,had said last month.

The government has been issuing bonds to cover losses at state oil refiners like Indian Oil Corp and Bharat Petroleum Corp Ltd,which are required to sell fuel at lower than market price to control inflation and help the poor.

In the fiscal year ended March 2009,the oil subsidy was Rs 758.5 billion as high global crude prices had inflated state-run oil firms’ losses.

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The oil bonds have swelled debt for the federal government,which is struggling with 16-year high fiscal deficit and record market borrowing of Rs 4.51 trillion for the fiscal year to March 2010.

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