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Oil firms flinch at Rs 7,500 cr subsidy squeeze

Pradeep Puri in New Delhi | July 29, 2003 09:42 IST

The four state-owned oil marketing companies will take a Rs 7,500 crore (Rs 75 billion) hit on their bottomlines in the current financial year because of the non-revision of retail prices of domestic liquefied petroleum gas and kerosene sold through the public distribution system.

The under-recoveries of oil companies -- Indian Oil Corporation, Bharat Petroleum Corporation Ltd, Hindustan Petroleum Corporation Ltd, and IBP Co Ltd -- was Rs 5,430 crore (Rs 54.3 billion) in 2002-03.

Big blow

  • The under-recoveries of oil companies was Rs 5,430 crore in 2002-03
  • The subsidy on domestic LPG and PDS kerosene has been reduced by a third to Rs 45.17 a cylinder and Rs 1.63 a litre, respectively
  • Retail prices of these products have not been revised for more than a year

According to petroleum ministry estimates, it will cross Rs 7,500 crore in 2003-04 because the finance ministry has lowered the subsidy on domestic LPG and PDS kerosene by one-third, but the oil companies are not being allowed to revise their retail prices.

While the subsidy on domestic LPG in 2001-02 came to Rs 67.75 a cylinder and that on PDS kerosene Rs 2.45 a litre, for the current financial year, these has been reduced to Rs 45.17 a cylinder and Rs 1.63 a litre, respectively. Their retail prices, however, have not been revised for more than a year.

Though Petroleum Minister Ram Naik had written to Prime Minister Atal Bihari Vajpayee seeking an increase in the retail prices of the two petroleum products, there has been no response to it.

Naik had suggested that the hike should be Rs 52 a cylinder for domestic LPG and Rs 1.10 a litre for PDS kerosene even after bringing down the excise duty on these two products to zero from 16 per cent.

According to the petroleum minister, while Finance Minister Jaswant Singh, during his Budget speech for 2002-03, had said the subsidy on PDS kerosene and domestic LPG would be phased out in 3-5 years, the finance ministry had decided to abolish it in three years and reduced this year's subsidy by one-third.

According to Naik, the subsidy should be phased out in five years.

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