India caps subsidy for fuel retailers at 40% of losses

The Indian government has decided to cap the amount of its subsidy to oil marketing companies or OMCs to 40% of their losses. Oil marketing companies (OMCs) can then expect a loss in revenues if the rise in global crude oil prices continue. Losses from selling fuel below cost reached Rs 103,292 crore (US$22.9 billion) in 2008-2009. The Indian government paid out Rs 78,826 crore (US$17.5 billion) worth of oil bonds to oil retailers. The government says that even if crude oil stays at the average of US$120 a barrel throughout 2011-12, under-recoveries will not pay more than Rs 1 lakh crore (US$22.16 billion). Currently, public sector fuel retailers are reporting a loss of Rs 9.55 (US$0.21) per liter on diesel fuel, Rs 20.57 (US$0.46) per liter on kerosene and Rs 356.07 (US$7.91) per cylinder on liquefied petroleum gas (LPG). The government has also decided to limit the availability of low-cost fuel, restricted to only the very-low income consumers. Those who qualify will be able to purchase subsidized kerosene etc. through the use of smart cards. The use of smart cards is hoped to help prevent the diversion of subsidized kerosene to the criminal sector and the sale of adulterated diesel fuel. Smart cards will be issued to consumers by September 2011. (March 4, 2011)