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Hindustan Petroleum confirms Indian oil firms stop taking margin hit on fuel sales

By Aftab Ahmed and Nidhi Verma

NEW DELHI (Reuters) - Indian state-owned fuel retailers have stopped absorbing a government-mandated cut of 1 rupee (0.014 U.S. cents) a liter in their marketing margins on the sale of petrol and diesel due to a steep fall in global oil prices, said M K Surana, chairman of one of the three companies, Hindustan Petroleum Corp Ltd.

In October, India's finance ministry had cut its production tax on the two fuels by 1.50 rupees a litre and had asked state-owned fuel retailers to reduce their marketing margins by 1 rupee a litre to insulate consumers from a surge in global oil prices at the time.

"Since global prices are low this issue is not there anymore," Surana told reporters on the sidelines of an industry conference.

Reuters had earlier in the day reported sources saying that state-owned fuel retailers had stopped absorbing the 1 rupee margin hit.

Surana said the oil fuel retailers have not yet decided when to start recovering the revenue losses they suffered since October because of the government mandate.

Two finance ministry officials said that the oil companies had previously been told to gradually recoup any lost revenue if crude prices fell.

"Now that the oil prices have come down they are now able to compensate the losses," one of the officials said.

It means that India's state-owned oil refiners, who are also its main fuel retailers, will not be passing on all the benefits of the drop in crude prices to consumers as they seek to recoup the margin hit they have been taking.

This is reflected, at least in part, by the relative difference in the recent declines of Indian fuel prices and global benchmarks.

The price of Brent crude, Singapore gasoline and Arab Gulf Diesel have declined between 37-40 percent since October 1 while Indian petrol and diesel prices have been reduced by about 17-18 percent, according to Reuters calculations.

That loss of margin should be fully reversed by the March end of the current fiscal year, the official added.

The sources declined to be named because of the sensitivity of the subject.

The three state-owned retailers - Hindustan Petroleum, Indian Oil Corp and Bharat Petroleum Corp - control most of the fuel retail business in India.

Shares of fuel retailers pared big losses in a falling Mumbai market after the Reuters report about the margins. By the end of the day, BPCL was down 2.52 percent, HPCL was 0.06 percent lower and IOC had slipped 0.33 percent.

BPCL and IOC did not immediately respond to Reuters' requests for comment.

Petrol and diesel prices in India are linked to Singapore gasoline prices and Arab Gulf diesel prices, which mostly track movements in crude oil prices.

(Editing by Martin Howell)