Govt to pay state-run fuel cos Rs 45K crores as oil subsidy

India has agreed to pay Rs 45,000 crore (Rs 450 billion) for the March quarter to state-owned fuel retailers as compensation for selling products at cheaper government-set rates, officials at these companies said on Thursday.

The decision, taken on Wednesday, has not yet been formally intimated by the finance ministry, but the current tranche will enable the companies to report quarterly profits at their earnings next week, officials at the three companies, who declined to be named, said.

The central government partially controls diesel prices and fixes retail prices of liquefied petroleum gas and kerosene to protect the poor, leading to revenue losses at state-run

Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.

The three retailers are estimated to have run up total revenue losses of Rs 1.6 trillion in the fiscal year 2012/13.

Of this, the finance ministry will pay about Rs 1 trillion by way of cash subsidies while the balance will be borne by state-run upstream companies -- Oil and Natural Gas Corporation, Oil India Ltd and GAIL (India) -- in the form of discounts on sale of crude oil and associated products.

India has allowed state-run retailers to gradually raise diesel prices since January, in an attempt to prop up public finances, and has also capped annual sales of subsidised cooking gas cylinders.