The Cabinet will take up the issue of fuel price hike at its meeting to be held early next week. The petroleum ministry has already said oil marketing PSUs would go in the red if they were not compensated for mounting under-recoveries on domestic sales of petroleum products (petrol, diesel, LPG and kerosene).

Also, in order to avoid passing on the impact of surging global oil prices to the domestic consumers, a compensation package, including issuance of oil bonds and increased subsidy-sharing by upstream oil PSUs such as ONGC, Oil India and GAIL has also been worked out. The Cabinet is expected to clear next week the issuance of around Rs 24,000 crore of oil bonds.

Sources said despite strong opposition from the finance ministry on the issuance of oil bonds, political compulsions on hiking domestic fuel prices have forced the government to resort to easy shortcuts of burdening the future generations by issuing oil bonds and of robbing the upstream oil firms (ONGC, Oil India and GAIL) to pay oil marketing companies (IOC, BPCL and HPCL). Cash-rich ONGC is likely to once again bear a major part of the burden.

Petroleum ministry officials told FE the total under-recoveries of the three oil marketing companies?Indian Oil, BPCL and HPCL?for the full year are estimated at Rs 62,000 crore. On their part, the OMCs would certainly get some relief from the burden of revenue losses from retail sales.

When asked, a petroleum ministry official said, ?With the possibility of elections looming, a hike in auto fuel price is highly unlikely.?

The three oil marketing companies are together losing around Rs 200 crore a day on retail sales of petroleum products.

IOC chairman Sarthak Behuria, on Friday said his company was losing around Rs 100 crore a day. ?I am given to understand that the government will approve oil bonds next week,? he said on the sidelines of an energy conference.

?With global crude oil prices remaining high, our working capital is under pressure, and our borrowings have increased significantly. However, a strong rupee value against the dollar is offsetting some of the losses,? another senior IOC official said.

The basket of crude oil that Indian refiners buy has averaged $75.27 per barrel in October so far. In September, the average price of the basket was $74.83 per barrel.

In the last financial year, the government had cleared oil bonds worth Rs 28,300 crore. Of this, Rs 24,100 crore worth of bonds were disbursed to the oil marketing companies.