The burden at this juncture would more than offset the gains

Pratim Ranjan Bose

The payout

The Union

Government had indicated an annual subsidy burden of Rs 12,000 crore for ONGC; the burden may well surpass the estimate.

The total

subsidy burden shared by ONGC so far in 2005-06 is Rs 8,549 crore.

Kolkata, March 29

ONGC may have to shell out higher subsidies in the fourth quarter to help the oil marketing companies (OMCs) book profit. Though no specific figures are available, sources said the price discounts would be "substantially" higher than the average payouts in the last three quarters.

It may be mentioned that the Union Government had indicated an annual subsidy burden of Rs 12,000 crore, which was to be borne by the company. However, as things stand now, the burden may well surpass the estimate.

The oil major shared a subsidy burden of Rs 2,876 crore in the first quarter, followed by Rs 2,830 crore in second quarter and Rs 2,843 crore in third quarter. The total subsidy burden shared so far in 2005-06 is Rs 8,549 crore. The total subsidy burden in 2003-04 and 2004-05 were Rs 3,113 crore and Rs 4,200 crore, respectively.

"It seems that we have to share a substantially higher subsidy burden in this quarter," an ONGC official said. The sources, however, made it clear that it would have an impact on ONGC's profitability.

The Catch-22

"We have already shared huge subsidy burden in the first two quarters. Our profitability was on a downswing in the third quarter due to lower production and reduction in crude prices. While production is yet to be restored fully, prices have started firming up again in this quarter. Naturally, a higher subsidy burden at this juncture would more than offset the gains," an ONGC official said.

Sources in the marketing companies, on the other hand, confirmed that their chances of booking profits in the current year were solely dependent on higher price discounts offered by ONGC. This is even after receiving two tranches of oil bonds. The worst sufferers are BPCL and HPCL. IOC is comparatively better off because of its substantial investments and the handsome dividends earned from its host of subsidiaries.

"As things stand now, we will make some profit in the fourth quarter. However, unless and until ONGC increases its price discounts we will end 2005-06 in the red," said a BPCL official.

BPCL received an average of Rs 700 crore from ONGC through price discounts during the last three quarters. "This time we need more to book profits in 2005-06," the BPCL official said.

Related Stories:
Subsidy burden: Oil cos to cough up Rs 3,274 cr for Q3 Ministry continues with previous quarter's formula
ONGC to seek cut in subsidy burden To avoid negative impact on profitability

(This article was published in the Business Line print edition dated March 30, 2006)
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