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Balaji C. Mouli

NEW DELHI, March 25

THE Government has decided to pay an additional Rs 1,000 crore as subsidy to oil companies to partially compensate them for losses on sale of LPG and kerosene at subsidised rates during 2002-03.

This will marginally reduce the losses incurred by the Government-owned petro marketing oil companies, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and IBP Ltd, which were forced to hold consumer prices of the two products due to political compulsions, running up losses to the tune of Rs 4,000 crore during the fiscal.

While IOC is likely to gain in the region of Rs 450 crore, HPCL and BPCL will gain over Rs 100 crore each.

The oil companies, however, reported strong results during the year on the back of healthy refining margins and inventory gains due to rising crude prices.

Constant alignment of retail prices to market levels in the case of mass consumption products such as petrol and diesel also helped offset the losses.

For the 2002-03 fiscal, the Union Budget presented in February 2002 provided a subsidy of Rs 4500 crore on sale of kerosene and LPG.

However, this assumed that the then prevailing price of crude - product prices are generally aligned to crude prices - of $20 per barrel. Later, in September 2002, the Government set out a flat subsidy rate of Rs 67.75 per cylinder and Rs 2.45 per litre of kerosene.

This increased the subsidy bill by Rs 2,200 crore to Rs 6,700 crore, assuming a higher crude price of $23 per barrel.

However, during this year's Budget presentation, the additional amount did not find any mention.

Instead, the Finance Ministry clubbed this amount with the subsidy allocation for the current year of Rs 4,100 crore.

In this backdrop, the Petroleum Ministry mooted a proposal to the Finance Ministry seeking reallocation of funds from the Rs 1,500 crore assigned in the Budget for payment of irrecoverable taxes levied by States - like Central sales tax, entry tax, etc., - on the products sold by oil marketing companies.

Since around Rs 1,000 crore is already made good by the oil marketing companies through levy of surcharge on products sold in individual States, a reallocation of this amount towards payment of subsidy bills was mooted.

The Finance Ministry agreed to this proposal on March 24.

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