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Balaji C. Mouli

New Delhi , Sept. 10

THE Government is considering a proposal to transfer some of the burden of subsidy on LPG and kerosene on to ONGC.

Currently, the public sector oil marketing companies, IOC, HPCL and BPCL, bear the entire brunt of this subsidy.

These companies sell LPG at Rs 90 per cylinder and kerosene around Rs 2.35 per litre below market prices.

In the process, so far during this fiscal, they have lost around Rs 3,200 crore.

"The modalities of this option are many. One could be to regulate the full market price that ONGC gets from the refiners for the crude it sells to the latter. Another could be to regulate the gas price that ONGC accrues," a top Petroleum Ministry official told Business Line.

The upstream major produces 15 per cent of the domestic LPG requirement from the natural gas produced by it.

The company also meets a third of the country's crude requirement.

The other options being considered by the Petroleum Ministry include a possible price hike and a cut in taxes.

These two options have not been successful in the past. On the political front, the Petroleum Minister, Mr Ram Naik, has not been able to muster enough support to push through a price hike.

On the taxes front, the Finance Minister, Mr Jaswant Singh, appears to be unrelenting.

IOC, which enjoys around 55 per cent of the domestic retail market, wrote in March this year to the Government stating that only the refining and marketing companies were bearing the brunt of the decision not to raise LPG and kerosene prices during the entire year, even as international crude and product prices soared.

In this context, it sought sharing of the burden with the upstream oil producing companies, which have gained considerably during the year with high crude price realisation.

The Government did consider this option in March but decided against it.

For, if it caps the crude price, in a sense it would mean return of the regime prior to the dismantling of the administered pricing mechanism (APM) in the petroleum sector on April 1, 2002.

During the APM regime, ONGC was remunerated a flat $16 per barrel for the crude sold to the refiners.

Refiners such as IOC, HPCL and BPCL, however, paid market prices for this crude, which were significantly higher.

The difference was netted into the oil pool account, an account managed by the Government to pay for subsidies incurred by the oil marketing companies on sale of products such as LPG and kerosene at prices determined by it.

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