Oct. 20 (Bloomberg) -- India’s oil ministry is seeking 140 billion rupees ($2.8 billion) as a quarterly subsidy for state- run refiners, which sell fuels below cost to help curb inflation in Asia’s second-fastest growing major economy.
The oil ministry has sought the amount for the three months ended Sept. 30 from the finance ministry after being promised 150 billion rupees for the preceding three months, Oil Secretary G.C. Chaturvedi told reporters in New Delhi yesterday. The refiners’ revenue losses from fuel sales for the two quarters together is 649 billion rupees, he said.
“The financial condition of the companies is fairly fragile and I’m worried about their health,” Oil Minister S. Jaipal Reddy told reporters yesterday. “We’re pressing the finance ministry for substantial compensation.”
India’s Finance Minister Pranab Mukherjee said yesterday it will be a “challenge” to cut the fiscal deficit to the lowest in four years and inflationary pressures continue. Prices in India have risen the second-fastest among the Group of 20 nations behind Argentina. Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. are borrowing more because the government is yet to compensate them for diesel, kerosene and cooking gas sales since April.
Indian Oil reported a loss of 37.2 billion rupees in the three months ended June 30, its biggest since the quarter ended Sept. 30, 2008. Bharat Petroleum had a 25.6 billion-rupee loss and Hindustan Petroleum 30.8 billion rupees.
‘Coming to a Head’
Indian Oil has about 770 billion rupees of debt and the company has sought shareholders’ permission to raise its borrowing limit to 1.1 trillion rupees from the current 800 billion rupees, Chairman R.S. Butola said yesterday.
“Everything seems to be coming to a head,” Butola said. “Oil prices continue to stay high, the rupee’s dropping and interest rates are high.”
Brent crude has increased 17 percent in London trading this year. India’s oil purchases are benchmarked to Brent.
The rupee has climbed 11 percent against the dollar since Aug. 1, increasing the cost of crude purchases for refiners. Every one rupee increase in the Indian currency against the dollar raises the three refiners’ annual losses from fuel sales by about 80 billion rupees, Minister Reddy said yesterday.
To compensate the refiners, state-run oil producers including Oil & Natural Gas Corp. and Oil India Ltd. sell crude at a discount, hurting their profits. The explorers would “be lucky” if their share of total subsidy for the year ending March 31 remained at 33 percent, Reddy said.
India’s benchmark wholesale-price inflation rate has stayed above 9 percent since the start of December and was 9.72 percent in September, according to the commerce ministry. High crude oil prices may boost fuel subsidies and make the goal of narrowing the budget deficit to 4.6 percent of gross domestic product by March 31 a “challenge,” Mukherjee said yesterday.
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