The Finance Ministry is keen about a hike in petrol and diesel prices to offset losses of oil firms, although it has agreed to issue oil bonds to insulate them from skyrocketing global crude prices.

“We like (domestic fuel) prices to go up before oil bonds could be issued. But it is not a precondition for issuing the bonds,” a key Finance Ministry official said.

In fact, government-owned oil firms had sought an immediate hike in petrol, diesel, LPG and kerosene prices as they are losing over Rs 185 crore a day on sale of these products.

The government is exploring different options since the entire burden cannot be passed on to the consumer.
The recent decision of the Cabinet to offer five per cent government equity in Oil India to Indian Oil and 2.5 per cent each to HPCL and BPCL was also aimed at arming these companies with an option to sell these shares at a later date so that they are compensated for their under-recoveries.

Pointing out the difference of opinion between the Finance Ministry and oil marketing companies, the source said the companies wanted the ministry to compensate them for their losses as of yesterday, but the ministry wants it to be tomorrow.

“Till when can we withhold the pressure? Ultimately, the government will have to take a decision. Informal discussions are on at the government level (over oil bonds),” the source said.

While one estimate puts PSU oil firms’ losses on the sale of petrol diesel, LPG and kerosene at Rs 52,162 crore, the Ministry is yet to work out the losses. Depending on that, the size of the oil bonds would be worked out.

Petrol prices were cut by Rs two a litre and diesel by Re one a litre in February, but the Indian basket of crude oil has risen over 30 per cent since then. Firms are losing Rs 5.88 per litre on petrol and Rs 4.80 a litre on diesel.