New Delhi: Government-owned gas supplier GAIL (India) Ltd will compensate a part of the losses made by state-run oil marketeers on account of selling products below production cost in the current fiscal, a top petroleum ministry official said.

Gas connection: Petroleum secretary S. Sundareshan. Ramesh Pathania / Mint

Currently, refiners such as Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL) underwrite part of the losses through price discounts to marketers such as Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd, and Hindustan Petroleum Corp. Ltd.

The government also makes good a part of the losses by issuing special bonds.

A committee chaired by former Planning Commission member Kirit Parikh—which on 3 February suggested removing price controls on petrol and diesel—made no mention of GAIL underwriting part of the losses due to subsidized prices.

The Parikh committee recommended sharing of production revenue from the oil and gas blocks given to state-owned ONGC and OIL with the petroleum ministry to help meet the subsidy burden.

The total subsidy sharing by the upstream companies was Rs32,000 crore in 2008-09.

“The committee has also given certain leverage to the ministry of petroleum and natural gas to really decide on the upstream contribution and the management of the upstream contribution," Sundareshan said.

In 2009-10, GAIL would be making a contribution as it has been doing in the last three quarters, the secretary said, adding that the ministry will later decide on the manner of sharing in the year beginning 1 April.

“The logic of GAIL contributing is really because of its association with LPG (liquefied petroleum gas) and losses incurred on LPG," Sundareshan said. “The LPG is purchased from GAIL at international prices, so that is the logic why GAIL is making its contribution. And let us see how this stands out in the next year."

GAIL has so far underwritten Rs988 crore in the nine months to 31 December. It contributed Rs1,781 crore in 2008-09.

The three state-run oil marketeers operate almost 95% of the retail outlets in India and are expected to end the current fiscal by not recovering around Rs43,000 crore of their costs.

The finance ministry has given Rs12,000 crore to the state-owned refiners and an additional Rs19,574 crore is required for the entire fiscal year to make good the so-called under-recoveries.

Questions emailed to a GAIL spokesperson remained unanswered at the time of going to press. Chairman and managing director B.C. Tripathi and finance director S.K. Goel did not respond to repeated phone calls and messages sent to their cellphones.

GAIL posted a net profit of Rs2,229 crore on a turnover of Rs18,411?crore for the first nine months of the current financial year. The firm registered a net profit of Rs2,804 crore on a turnover of Rs23,776 crore in 2008-09.

State-owned refineries have been opposing retail price controls that erode their earnings. They have failed to recover Rs2,99,222 crore of their costs between 2003-04 and 2009-10.

The companies were partially compensated by the government to the tune of Rs243,488 crore through oil bonds and contributions from upstream companies.