The Hindu Business Line : Subsidy sharing: ONGC suggests `price equalisation discount'

To make the process of subsidy sharing transparent, ONGC has proposed to the Petroleum Ministry a `price equalisation discount' on crude oil mechanism to shoulder the burden of under-recoveries suffered by the State-owned oil marketing companies (OMCs).

Official sources said this formula was suggested in lieu of the existing ad hoc system of sharing under-recoveries and earlier suggested mechanism of calibration of oil industry development (OID) cess.

As per the formula, ONGC has proposed sharing as much as 75 per cent of its incremental revenue on crude price above a particular level.

This will be a transparent and equitable mechanism, sources said adding that the remaining 25 per cent of the revenue upside is necessary to be retained by ONGC to finance and compensate the incremental costs of oil field services and materials, which move in tandem with crude oil prices.

Currently, upstream oil companies, ONGC, Oil India Ltd and GAIL (India) Ltd, share the under-recoveries of the oil marketing companies in the form of subsidy provided by way of discounts on crude, cooking gas and kerosene prices.

Under the suggested methodology of price equalisation discount, the upstream companies will share their additional revenue, over a specified level of crude price, with the Government, when the price of crude crosses this stipulated level.

Currently, the OID cess of Rs 2,500 per tonne is being paid by upstream companies on crude oil, irrespective of the crude prices.

"This can be pegged at a specified level of crude price of say $40 per barrel. Collection of price equalisation discount shall start once the crude oil price crosses this level. ONGC is ready to share as much as 75 per cent of the incremental revenue beyond this specified level in the form of price equalisation discount," officialssaid.

However, the introduction of a new discount system comes with a rider.

According to sources, ONGC has proposed that it should not be asked to share under-realisation of retail companies on any account and that the company should be allowed to pay all statutory duties, levies, taxes on the price equalisation discount adjusted crude price.

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