The Hindu Business Line : ONGC, OIL seek equitable sharing of subsidy burden

Burdened
For the current fiscal, the estimated under-recovery is expected to be Rs 55,000 crore.
The Ministry plans to seek oil bonds worth Rs 19,000 crore.

Richa Mishra

New Delhi, July 12

ONGC and Oil India Ltd (OIL) have approached the Petroleum Ministry seeking a more equitable and predictable formula for sharing the burden to offset revenue losses suffered by oil marketing companies on selling petroleum products below cost price.

The Government has adopted a policy of burden sharing between the Government – oil bonds, upstream oil companies, refiners and consumers.

Separately, both the upstream companies have voiced their concern over the growing burden on them year after year and stated that it was not rational. Sources told Business Line that the burden sharing mechanism should be equitably distributed so that the downstream companies such as Indian Oil Corporation, Bharat Petroleum Corp and Hindustan Petroleum Corp also share a fair amount of it.

Last fiscal, ONGC forked out Rs 17,024 crore which was substantially higher than Rs 11,956 crore the company gave in 2005-06. OIL also saw a considerable increase in burden sharing last fiscal. OIL shelled out Rs 1,994 crore (up from Rs 990 crore in the preceding year). The total burden shared by upstream companies including GAIL (India) Ltd for the last fiscal stood at Rs 20,498 crore against the total under realisation suffered by the marketing companies of Rs 49,387 crore. The Government compensated them by way of oil bonds worth Rs 24,121 crore.

According to estimates the downstream contribution was only to the tune of Rs 6,000-7,000 crore last fiscal which the upstream companies felt was not fair.

“We do not want to be subjected to higher under-recovery as we have our own growth plans,” an upstream company official said. For the current fiscal, the estimated under recovery is expected to be Rs 55,000 crore. The Petroleum Ministry plans to seek oil bonds worth Rs 19,000 crore and an equitable contribution from the upstream companies is expected.

Besides, the rupee appreciation has had a positive impact on the profitability of the oil refiners, but the same can not be said for upstream companies, the official said.

The oil producers currently bill crude sale in dollar per barrel. This system is beneficial to refineries when the rupee appreciates, as crude procurement becomes cheaper as they pay lower in rupee terms. However, it has a negative impact on upstream companies as per barrel realisation falls, even though the actual cost for crude output, in rupee terms, remains unchanged.

Though the crude prices have been moving northward, the share of burden has also gone up, he said. The Indian crude basket on July 11 stood at $73.22 a barrel up from $72.86 a barrel the previous day. The under recovery figures as on July 2 stood at Rs 4.97 per litre on petrol and Rs 4.45 per litre on diesel. The revenue loss on kerosene stood at Rs 14.64 per litre and on cooking gas at Rs 189.14 crore.

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