Virtually rejecting the claims of the Union Petroleum and Natural Gas Ministry for a Rs. 29,405-crore compensation through oil bonds, the Finance Ministry on Friday agreed to release just over Rs. 12,000 crore in cash to loss making State-run oil companies to cover for their losses in the current fiscal.

Official sources said the Finance Ministry sent a letter to the Petroleum and Natural Gas Ministry stating Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) will be paid Rs. 12,020 crore in cash to cover for their losses on sale of domestic LPG and kerosene in 2009-10.

The release of money comes after a meeting between the Petroleum Minister, Murli Deora, and the Finance Minister, Pranab Mukherjee, on Thursday where Mr. Deora had reminded the Finance Minister about his promise of making up entire losses on the cooking fuel by way of either oil bonds or cash. It was then agreed that losses on petrol and diesel would be made up by upstream firms such as ONGC.

Although there was dejection in the Petroleum Ministry over the amount of money released by the Finance Minister, officials said they would accept the cash offered as part-payment for the losses in 2009-10 fiscal and continue to press the Finance Ministry for more.

IOC, BPCL and HPCL are projected to lose Rs. 29,405 crore on sale of domestic LPG and kerosene below cost. Another Rs. 12,000 crore loss is projected on petrol and diesel. Sources said ONGC, Oil India and GAIL India, which were earlier to meet only auto fuel losses, might be asked to pick some losses on LPG and kerosene sales.

While the Petroleum Ministry has sought oil bonds worth Rs. 31,700 crore, the Finance Ministry has offered less than half of this amount. The short-term solution will be given right now and the long-term solution will come after the recommendations of the Kirit Parikh Committee.

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