Richa Mishra

New Delhi, May 7

OIL and Natural Gas Corporation Ltd has pressed upon the Government that the subsidy burden on the state-owned company should not be based on its profit. Instead, it has suggested that a different mechanism could be worked out for sharing the burden such as creation of a separate subsidy fund where all public sector oil companies contribute a fixed amount.

Sources told Business Line that high subsidy burden based on profit distorts the balance sheet. This is not good for the company since it is answerable to its shareholders.

ONGC's subsidy burden due to LPG and PDS kerosene was around Rs 3,113 crore in 2003-04 and Rs 4,200 crore in 2004-05.

In fact, the company had to revise downwards its estimated turnover for 2004-05 by Rs 1,000 crore to Rs 46,025 crore and estimated net profit by Rs 500 crore to Rs 12,175 crore, following instructions from the Ministry of Petroleum and Natural Gas to continue the practice of sharing under-recoveries on PDS kerosene and LPG for the fourth quarter of the fiscal.

ONGC had earlier estimated a turnover of Rs 47,025 crore and a net profit of Rs 12,725 crore for 2004-05,after excluding transfer of Rs 3,114 crore profit to Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd for April-December 2004.

Consequent to the dismantling of the administered price mechanism from April 1, 2002, and winding up of the Oil Pool Account, the oil companies have been feeling a pinch due to the subsidy burden.

In addition to the subsidy, the public sector oil marketing companies have been sharing the burden by not passing the full increase in international prices to the domestic consumer prices of these products.

In fact, the Asian Development Bank, in its recent annual publication `Asian Development Outlook', has made certain observations on the subsidy mechanism operated by the Government and public sector oil companies regarding petroleum products.

The report has urged them to scale back subsidies and align prices with the market.

Although ONGC is making substantial profits from crude sales, due to the high subsidy burden, it is feeling the strain, sources said.

Because of the subsidy burden, the contribution of gas production in the company's revenue is only 15 per cent, despite it being almost 50 per cent in the company's total production. Crude production contributes 85 per cent revenue and 50 per cent volume.

(This article was published in the Business Line print edition dated May 8, 2005)
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