Government coughs up Rs14,000 crore for oil companies

The government has approved the much-awaited cash compensation to public sector oil companies. On Wednesday, the finance ministry approved the paying of Rs14,000 crore this month to partially subsidise oil marketing companies (all of which are state-run) for selling fuel at cheaper prices.

Though the petroleum ministry had been pressing for Rs19,000 crore as compensation, it was widely known that the finance ministry was unlikely to yield to the oil ministry's demand. These companies would probably have to absorb the remaining loss of over Rs5,000 crore.

The funds will reach the firms - IndianOil, Bharat Petroleum and Hindustan Petroleum - at a later stage, but they can use the authorisation while preparing their financial results for the 2009-10 fiscal. CNBC-TV18 had earlier reported that the compensation would be announced soon as it was hindering the closure of accounts of OMCs.

Finance minister Pranab Mukherjee had budgeted for only a Rs3,108-crore subsidy for OMC losses incurred in 2009-10, to be paid by the government in 2010-11, in the appropriations approved by Parliament earlier this week for the coming year. A bill for supplementary estimates would have to go to the legislature later this year.

Last year, the government paid Rs14,954 crore as subsidy to the OMCs.

Commenting on the development, petroleum secretary S Sundaresan said financial year 2009-10 under-recoveries stand at Rs45,000 crore. "Of this, Rs15,000 crore is the under-recoveries from petrol and diesel, which has already been borne by upstream companies." He added that the balance will be compensated by the government.