Union Petroleum Minister M Veerappa Moily warned against the move by the Finance Ministry to change the subsidy calculation formula for state-run oil marketing companies (OMCs).
The finance ministry has proposed to shift from trade parity pricing of petroleum products to export parity pricing (for the sake of computing under-recoveries).
The government compensates most of the under-recoveries that the OMCs incur on selling diesel, domestic LPG and kerosene at controlled rates which are way below the cost.
Such a shift would reduce subsidy compensation to these OMCs by Rs 17,000 crore and this would affect their expansion and modernisation plans.
Moily said these OMCs have not been adding any margin on crude oil or on petroleum products since 2005-06. What is import price plus transportation and taxes is all that is there in the selling price, he told reporters.
Moily said the three OMCs, IOC, BPCL and HPCL, are together projected to end the fiscal with a revenue loss of Rs 163,000 crore in current fiscal.
Of this, the finance ministry wants to shave off Rs 17,000 crore by changing methodology to export parity pricing (EPP).
Citing example of China which has been expanding refineries at a massive scale, he said oil firms need $80 billion to modernise and expand old and obsolete units.