New Delhi: India intends to pay the state-run fuel merchants, such Indian Oil Corp., roughly Rs 20,000 crore ($2.5 billion) to partially make up for losses and control cooking gas costs, according to persons with knowledge of the matter.
According to the persons, who asked to remain anonymous since the talks were private, the finance ministry is only consenting to a cash settlement of roughly Rs 20,000 crore, despite the oil ministry’s demand for compensation of Rs 28,000 crore. The people stated that although the negotiations are far along, no decision has yet been made.
By absorbing record global crude prices, the three largest state-run merchants, who collectively supply more than 90% of India’s petroleum products, have seen their greatest quarterly losses in years. While the assistance would lessen their suffering, it would put additional burden on the government’s finances, which are already under pressure from fuel tax cuts and a greater fertiliser subsidy to combat escalating inflationary pressures.
For the fiscal year that ends in March, the government set aside Rs 5,800 crore for oil subsidies and Rs 1.05 trillion for fertiliser subsidies.
These oil-refining and fuel-retailing enterprises benchmarked the fuels they produce to market rates even though they use more than 85% imported oil. Those increased as a worldwide demand rebound coincided with decreased US petroleum production capacity and decreased Russian exports.
While private firms like Reliance Industries Ltd. have the freedom to take advantage of stronger fuel export markets, state oil corporations are required to purchase crude at international rates and sell it domestically in a price-sensitive market.
About half of India’s liquefied petroleum gas, which is typically used as cooking fuel, is imported. According to India’s Oil Minister Hardeep Singh Puri, on September 9 the retail price in Delhi climbed by 28% while the Saudi contract price, the import benchmark for LPG in India, increased by 303% over the previous two years.
Both the oil and finance ministries of India’s government declined to comment.
In order to slow the rate of inflation, the businesses, which also include Bharat Petroleum Corp. and Hindustan Petroleum Corp., have been holding down the price of gasoline and diesel at the pump since early April.
According to Bharat Petroleum Chairman Arun Kumar Singh, the oil companies will need some type of intervention, either through price increases or government compensation to cover prolonged losses.