Govt agrees to pay $2.25 bn oil subsidy: Sources

The finance ministry has agreed to pay Rs 10,000 crore (USD 2.25 billion) to compensate state oil retailers for selling fuel at below-market prices in the first half of the fiscal year, government sources with direct knowledge of the matter said.

The payout is less than what the oil ministry had been seeking, and officials there said on Wednesday they would ask for a higher level of cash compensation.

The payout, which will be released pending parliamentary approval, is intended to offset losses on sales of diesel, cooking gas and kerosene at government set rates during the first half of the fiscal year that started on April 1, one of the officials said.

The officials declined to be identified.

An official at a state firm said the oil ministry was seeking compensation of about Rs 15,800 crore rupees for the first half, or 50% of gross revenue loss on fuel sales.

"Our gross revenue loss in June quarter was about Rs 20,000 crore and for September quarter it was about Rs 11,600 crore," he said, referring to state oil retailers.

The federal government pays cash subsidies to state oil retailers Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum. Upstream state oil companies -- Oil & Natural Gas Corp, Oil India Ltd and GAIL -- sell crude oil and products at a discount.

Upstream firms will together pay a subsidy of about Rs 3800 crore to oil retailers in the September quarter, company officials said. That's about 43% less than in the June quarter as the government ended control on petrol prices and raised the prices of diesel, cooking gas and kerosene in late June.

Oil India's head of finance, TK Ananth Kumar, said on Wednesday his firm's subsidy burden was about Rs 399 crore for the September quarter.

An ONGC official said his firm would bear a subsidy of about Rs 3019 crore, while a GAIL official said his firm's share would be Rs 346 crore.

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