ONGC, OIL freed from sharing subsidy, but with riders

Our Bureau New Delhi | Updated on January 23, 2018 Published on May 22, 2015

Mechanism in place for Q1 of 2015-16

Public sector oil exploration and production firms ONGC and Oil India have been exempted from paying fuel subsidy if global oil prices average up to $60 a barrel, but will have to share a part of the burden if rates go higher. The arrangement is in place for the first quarter of 2015-16, said ONGC Chairman and Managing Director DK Sarraf on Friday.

“We have received a communication from the Ministry for Petroleum and Natural Gas detailing the subsidy sharing formula for the first quarter of the current fiscal. If crude oil prices are below $60 a barrel, we are not liable to pay any amount for under-recoveries,” said Sarraf. “If oil prices are between $60-100 a barrel, we would have to pay 85 per cent of the incremental price over $60. If oil rates are over $100 a barrel, we would be liable to pay 90 per cent of the incremental rate we get over and above $60,” he added. Brent crude oil was trading at $65.29 a barrel at 7.44PM IST.

Oil marketing companies get a cash subsidy from the government and discounts from ONGC and OIL for selling sensitive products, such as PDS kerosene and domestic LPG, at less than market rates.

However, since the implementation of the direct benefit transfer of LPG, all cylinders are sold at market rates, with the subsidy being directly transferred to the customer by the government. In essence, only the kerosene subsidy burden, if any, needs to be shared by ONGC and OIL.

For the fourth quarter of 2014-15, the two companies will not be required to share the subsidy burden.

Published on May 22, 2015
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