The finance ministry agreed to give just over Rs 12,000 crore in cash to the state run oil companies to compensate their losses from selling fuel at below market price. The compensation is to cover the losses for the current year and is much lower than Rs 29,405 crore demanded by the petroleum ministry.

In a letter sent by the finance ministry to the petroleum ministry, it said ‘Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp would be paid Rs 12,020 crore in cash to cover their losses on sale of domestic LPG and kerosene in 2009-10.’

Murli Deora, the union Petroleum and Natural Gas Minister, had reminded Finance Minister Pranab Mukherjee of the commitment made in July 2009 that the compensation would cover the entire loss on cooking fuel in the form of either oil bonds or cash. The loss arising from the sale of auto fuels, Petrol and Diesel, is to be shared by the upstream firms like ONGC and GAIL.

The petroleum ministry agreed to accept the payment released by the Finance Minister for the losses in 2009-10 fiscal however, only as a part payment and will continue in its demand for more compensation.

Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are expected to suffer losses to the tune of Rs. 29,405 crore jointly from the sale of LPG and kerosene below cost. Upstream firms could be asked to take up more losses including some in the cooking fuel segment.

For the longer tern solution a report by Kirit Parikh Committee is expected to be submitted soon.