FinMin rejects LPG, kerosene subsidy hike bid

Oil ministry seeks Rs 14,400 cr rise.

In a move that may pressure the oil companies to raise prices, the finance ministry today shot down the petroleum ministry's proposal to increase the subsidy available for kerosene and cooking gas to around Rs 18,000 crore from the present level of Rs 3,644 crore.

The petroleum ministry had also proposed that the oil subsidy be made available till March 2010. The government is to provide subsidy only till March 2007 following a decision last year to extend the period by two years.

Senior government officials told Business Standard that North Block was also against any move to make more funds available from the oil cess that was being collected. The ministry was of the opinion that the government was already under pressure from fertiliser companies, which were one of the other beneficiaries of the cess, to raise their share.

The petroleum ministry had estimated that the under-recoveries from the sale of cooking gas and kerosene sold through the public distribution system at Rs 18,000 crore during the current financial year. Oil companies have reported under recoveries of Rs 92 a cylinder on cooking gas and Rs 11 a litre for kerosene.

"You have reached a situation where kerosene is sold at Rs 9 a litre while the under-recovery is Rs 11. The situation is unsustainable and is resulting in wide scale adulteration," said an official.

The move would come as a major setback for oil marketing companies which have been unable to raise prices in line with the international prices. With the cost of crude rising to $61 a barrel, oil companies are seeking an increase in price.

The petroleum ministry, under pressure from the Left parties, was, however, keen that the excise duty be cut and the government take over a part of the under-recoveries to ensure that the consumer had to take the least possible hit.

Indian Oil, Hindustan Petroleum, Bharat Petroleum and IBP Ltd reported losses amounting to over Rs 1,200 during April-June. Their cash losses during July are estimated at over Rs 1,500 crore.