Upstream oil firms pay 40 pct of fuel subsidy

A worker holds a fuel nozzle at a petrol pump in Mumbai June 11, 2010.

NEW DELHI (Reuters) - State-run upstream oil firms will bear nearly 40 percent of the 1.38 trillion rupee cost of retail fuel subsidies for the 2011/12 year, a government source said on Monday.

Oil and Natural Gas Corp (ONGC.NS) (ONGC), Oil India Ltd (OILI.NS) and GAIL (India) (GAIL.NS) sell refined products and crude oil to state fuel retailers at a discount. Government also provides a cash subsidy to cover some of their losses.

State-run upstream firms will give a total discount of about 550 billion rupees to Indian Oil Corp (IOC.NS), Bharat Petroleum Corp (BPCL.NS) and Hindustan Petroleum Corp, the source said.

The subsidy payout and additional compensation from government would allow the fuel retailers to post profits for the January to March quarter, said the source, who was not authorised to speak to media.

The union government fixes the retail prices of cooking gas, kerosene and diesel to help the poor and keep inflation in check.

For 2011/12, ONGC's subsidy payout will be fixed at about 445 billion rupees, up 79 percent from a year ago, while OIL's share has more than doubled to 74 billion rupees from 33 billion rupees in 2010/11, he said.

The subsidy payout by GAIL for the last fiscal year to the end of March will rise by about 51 percent to about 32 billion rupees against 21 billion rupees of 2010/11.

Of the 550 billion rupees provided by the upstream industry, IOC's share will be 300 billion rupees, HPCL's 121 billion rupees while BPCL will get about 130 billion rupees.

India's finance ministry has also agreed to give an extra 385 billion rupees cash subsidy to partly cover revenue losses of state fuel retailers in the January-March quarter, taking the overall compensation to 835 billion rupees for 2011/12.

From the additional government cash compensation of 385 billion rupees, IOC will get about 209 billion rupees, BPCL's share is about 92 billion rupees while HPCL will get about 85 billion rupees.

(Reporting by Nidhi Verma; Editing by Matthew Tostevin)