Govt may give cash subsidy to oil firms - oil secy

File photo of the Bharat Petroleum Corporation refinery in Mumbai, April 24, 2008. State oil companies may get cash instead of oil bonds as compensation from the government for selling fuel at below market prices, the oil secretary said on Thursday.

NEW DELHI (Reuters) - State oil companies may get cash instead of oil bonds as compensation from the government for selling fuel at below market prices, the oil secretary said on Thursday.

"Most likely it (subsidy) is going to be cash," R.S. Pandey told reporters after a meeting with Finance Minister Pranab Mukherjee.

He said no decision had been taken on the quantum of compensation to be given by the finance minister.

"Discussions were held and we hope to hear from them soon," Pandey said.

The oil ministry had sought 200 billion rupees ($4.4 billion) of bonds for state-run firms as compensation for 2009/10, following an upward swing in global crude prices, S. Sundareshan, the No. 2 official in the oil ministry, had said last month.

The government has been issuing bonds to cover losses at state oil refiners like Indian Oil Corp and Bharat Petroleum Corp Ltd, which are required to sell fuel at lower than market price to control inflation and help the poor.

In the fiscal year ended March 2009, the oil subsidy was 758.5 billion rupees as high global crude prices had inflated state-run oil firms' losses.

The oil bonds have swelled debt for the federal government, which is struggling with 16-year high fiscal deficit and record market borrowing of 4.51 trillion rupees for the fiscal year to March 2010.

(Reporting by Nidhi Verma; Editing by Ranjit Gangadharan)

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