No decision yet on compensating oil PSUs, price rise: Deora

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Petroleum Minister Murli Deora says no decision was taken on compensating oil companies. Deora met Finance Minister Pranab Mukherjee on fuel pricing and oil bonds. He stated that the Finance Minister has not accepted the amount asked for. "The compensation to oil marketing companies is likely to be in cash. The Finance Ministry will revert on subsidy for oil companies in 1-2 days," Deora says, adding that fuel price rise did not figure in today's meet.

State-run downstream oil marketing companies had sought Rs 20,000 crore as compensation. As against that, CNBC-TV18 reports, quoting PTI, that the ministry was seeking Rs 30,000 crore by way of oil bonds.

The issue of fuel price subsidy is a contentious one in India. Oil marketing companies (OMCs) in India do not have a free pricing mechanism in which prices of fuels like LPG, kerosene, petrol and diesel are decided on the basis of international crude oil costs. Instead, India follows a subsidized fuel pricing mechanism in which these fuels are sold by state-run oil marketing companies at a fixed rate even if international prices of crude go up. As a result, many OMCs sustain losses when selling prices are even lower than production cost.

To compensate for this loss, the government issues oil bonds, but this year, the Finance Ministry had deferred issuing oil bonds to OMCs in the third quarter. In fact, reports had suggested that the Ministry of Finance was in favour of scrapping the practice of issuing oil bonds altogether, leaving OMCs in despair.