Losses on sale of diesel at government-controlled rates have hit a record Rs 14.57

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a litre, sending state-owned oil companies scrambling for ways to cover mounting losses.

Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) are losing Rs 435 crore per day as they are made to sell diesel, domestic LPG and kerosene way below cost to keep inflation under check.

Industry sources said diesel is being sold at a loss of Rs 14.57 a litre, kerosene at Rs 29.93 per litre and domestic LPG at Rs 326 per 14.2-kg cylinder.

Losses on diesel are the highest ever, beating Rs 13.53 a litre loss that oil firms incurred in the first half of December.

At current rate, the three firms are projected to lose Rs 136,936 crore in revenues in the financial year ending March 31, sources said.

In addition, they suffer a loss of about Rs 1.50 a litre on petrol sales, even though prices were freed from government control in June 2010.

Petrol price too have not been revised in step with cost due to their electoral impact in view of the assembly elections in five states including Uttar Pradesh and Punjab.

Sources said if prices are not hiked, the government will have to come up with other ways to compensate the oil marketing companies for their losses.

The Oil Ministry wants the Finance Ministry to compensate the oil companies in cash for at least half of their under-recoveries by making adequate provisions in the Budget.

Upstream oil firms like Oil and Natural Gas Corp (ONGC) will shoulder one-third of the burden.

For the first six months, the Finance Ministry has approved the release of a cash compensation of Rs 30,000 crore for the three state-run fuel retailers.