$60 per barrel oil would rid ONGC, OIL of subsidy pain

The government has exempted oil producers ONGC and Oil India from payment of fuel subsidy if the global oil prices average up to $60 a barrel, but will pay a graded rate beyond this threshold. “We have received a communication from the Ministry of Petroleum and Natural Gas detailing subsidy sharing formula for Q1 of the current fiscal. If crude oil prices are below $60 per barrel, we are not liable to pay any amount for under-recoveries.

“If oil prices are between $60-100 per barrel, we would have to pay 85 per cent of the <g data-gr-id="33">incrmental</g> rate over $60. And if oil price is over $100 per barrel, we would be liable to 90 per cent of the incremental rate we get over and above $60 in fuel subsidy,” ONGC Chairman and Managing Director Dinesh K Sarraf said. The government regulates <g data-gr-id="30">price</g> of cooking fuels LPG and kerosene to shield the poor. The difference between the cost and the retail selling price is borne by the government by way of cash subsidy and upstream producers like Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL). 

The upstream producers were however exempted from subsidy payment in the fourth quarter of 2014-15 fiscal when the government decided to pick up the entire tag of Rs 5,223 crore under-recovery or revenue loss on selling fuel below cost. Sarraf said the formula notified earlier this week is only for the first quarter of current fiscal. At a press conference to mark one year of Modi Government, Expenditure Secretary Ratan <g data-gr-id="39">Watal</g> said, there were two subsidy lines -- one for kerosene, one for LPG.

While for LPG the government is paying <g data-gr-id="43">subsidy</g> directly into bank accounts of users, for kerosene a formula is being discussed, <g data-gr-id="38">Watal</g> said, adding Rs 22,000 crore has been provisioned in the Budget for fuel subsidy. The Finance Ministry has sanctioned Rs 5,223 crore fuel subsidy for the January-March quarter to cover almost all of the revenue loss that the two retailers suffered on selling domestic cooking gas (LPG) and kerosene at government rates. With this, the total subsidy provided by the government in 2014-15 goes up to Rs 27,308 crore. For the first <g data-gr-id="40">three quarters</g>, the government had provided Rs 22,085 crore. 

The fuel retailers had lost a total of Rs 72,314 crore on selling diesel (up to October 17), LPG and kerosene at government rates, which were way below cost in 2014-15. Most of the under-recoveries, or revenue retailers’ loss on selling fuel below cost, of Rs 67,091 crore in the first nine months of the fiscal were accounted for by the subsidy support and <g data-gr-id="35">doleout</g> from upstream firms like ONGC.

While the government gave cash subsidy of Rs 22,085 crore, upstream oil producers ONGC, OIL and GAIL chipped in with Rs 42,822 crore. 

Indian Oil Corp (IOC) will get Rs 2,932 crore subsidy and Bharat Petroleum Corp Ltd (BPCL) Rs 2,291 crore for selling fuel below cost in Q4 of 2014-15, but Hindustan Petroleum Corp Ltd (HPCL) will not get any support. The Finance Ministry has sanctioned Rs 5,223 crore fuel subsidy for the January-March quarter to cover almost all of the revenue loss that the two retailers suffered on selling domestic cooking gas (LPG) and kerosene at government rates. Sources said that out of the subsidy sanctioned, IOC will get Rs 2,932.62 crore and BPCL the remaining Rs 2,291 crore. HPCL, they said, will not get any subsidy due to certain adjustments for the past payments. With this, the total subsidy provided by the government in 2014-15 goes up to Rs 27,308 crore. For the first <g data-gr-id="79">three quarters</g>, the government had provided Rs 22,085 crore. The fuel retailers had lost a total of Rs 72,314 crore on selling diesel, LPG and kerosene at government rates.