The Hindu Business Line : Oil cos seek transparent subsidy sharing policy

WITH the Petroleum Ministry set to announce the subsidy-sharing ratio for the third quarter of the current fiscal in January, the upstream oil companies have sought a transparent policy to enable them to work out their financial commitments without any uncertainty.

The Government policy is equitable sharing of the burden by the consumers, Government and oil companies for under-recoveries suffered by the oil marketing companies (OMCs) due to anomalous price increase in the international market.

The share of the upstream companies is proportionate to the total quantum of under-recoveries.

Every quarter the Ministry indicates how much burden would have to be shared by the upstream companies - ONGC, GAIL (India) and Oil India Ltd.

Since there are no concrete figures available, it becomes difficult for a company to work out the financial strategies, sources said.

ONGC has represented to the Ministry seeking a review of the existing mechanism under which the upstream companies are sharing the under recoveries along with the Government and the downstream companies, keeping in view the increase in retail selling prices of petrol and diesel, the sharing of under-recoveries by refineries and the softening of international price of crude oil and petroleum products.

Sources told Business Line that last year the company has given an average $17.5 as a price discount on the crude oil. In fact, for the first half of 2004-05 the company's profitability amount was equivalent to the subsidy paid in the second quarter of the current fiscal, he said. The company had paid a dividend of 400 per cent amounting to Rs 5,704 crore during 2004-05, which is equivalent to the subsidy amount it has paid during the two quarters of the current fiscal.

The total subsidy borne by ONGC for first half of this fiscal worked out to Rs 5,706 crore, the sources said.

Almost 20 per cent of the turnover for the first half goes as the subsidy.

This impacts the company's investment plans in infrastructure development and to work out renewed commitment on investments for the fiscal.

Moreover, the Income Tax department does not recognise subsidy and hence the company has to pay tax on it. The whole structure was distorted, sources added.

The estimated under-recoveries of the OMCs despite discount given by refiners and subsidy sharing mechanism put in place was estimated at Rs 38,154 crore during the current year, up from Rs 20,146 crore for 2004-05.