Macro Economy

Oil subsidy provision falls short of Rs 42,200 cr for March qtr: Moody’s

PTI Mumbai | Updated on February 19, 2014 Published on February 19, 2014

Rating agency Moody’s today said the subsidy provisions made in the interim budget will not meet the amount that the government will have to pay to oil marketers and full-year budget will have to set aside a whopping Rs 42,200 crore more in the March quarter.

“Budget provision falls short of requirement and we estimate the total fuel subsidy burden at Rs 1,42,000 crore for this fiscal, which we expect to be shared by government and state—owned upstream oil companies.

“Excluding upstream companies’ share of fuel subsidies for the full fiscal, which we estimate at about Rs 64,000 crore, government will have to reimburse Rs 78,000 crore to fully compensate OMCs for under-recoveries and this shortfall will have to be covered by drawing upon next year’s budget,” Moody’s said in a note today.

The report further said “excluding the Rs 45,000 crore paid out to OMCs in the current fiscal for the previous fiscal’s under-recoveries, the budget provision of Rs 80,800 crore leaves only Rs 35,800 crore for reimbursements in the current fiscal. This implies a shortfall of Rs 42,200 crore, according to our calculations.”

Moody’s also warned that failure to fully reimburse OMCs will be credit negative. While we do not expect government to under—compensate OMCs, the credit metrics of OMCs will weaken should such a scenario materialise as their profits will decline and borrowings will increase.

“The extent of deterioration will depend on the reimbursement shortfall,” Moody’s said.

In its interim budget announcement on Monday, the government increased the provision for fuel subsidies by Rs 19,000 crore to Rs 80,800 crore for the current fiscal.

The increased budget provision for fuel subsidies is, however, still insufficient to fully reimburse oil marketing companies for their losses incurred in selling diesel, kerosene and LPG gas at subsidised rates. The Finance Minister has also pushed back Rs 35,000 crore of subsidy bill due this fiscal to the next fiscal.

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Published on February 19, 2014
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