New Delhi: As the crude oil prices rise, the government may ask upstream firms like ONGC to bear a part of the kerosene and LPG subsidies, India Ratings and Research said on Thursday.
Producers Oil and Natural Gas Corp (ONGC) and Oil India Ltd as well as gas utility GAIL were in past asked to bear between one-third to half of the under-recovery fuel retailers incurred on selling LPG and kerosene below market rate.
This subsidy sharing scheme ended last fiscal.
In a statement on its view on ONGC buying out HPCL, India Ratings said given the sharp increase in international crude price, oil marketing companies may be required to bear a part of the under-recoveries.
This would be on the lines of past when the government capped the subsidy burden it was willing to share per kilogram and per litre on LPG and kerosene, respectively.
Any under-recovery over and above the level up to which the government can bear is to be borne by upstream and oil marketing companies, it said.
"Although there is no mathematical basis for deciding the share of the subsidy to be borne by upstream or oil marketing companies, upstream companies have historically shared the bulk of the remaining subsidy burden post the government share," it said.
India Ratings said ONGC's acquisition of Hindustan Petroleum Corp Ltd (HPCL) will be credit neutral for ratings of HPCL.
ONGC, which is 68.94 per cent owned by the government, will acquire the government's 51.11 per cent stake in HPCL for Rs 36,915 crore.
"Thus, the government of India will indirectly own 35.23 per cent in HPCL," it said in a statement.
Despite the change in ownership, HPCL will continue to operate as a separate entity with a strong brand. Its strategic importance to the government is likely to remain intact, given the company's role as the State's extended arm for fuel policy implementation.
"The acquisition of HPCL is likely to result in additional borrowings for ONGC," India Ratings said, adding that the state-owned oil producer is likely to fund the acquisition by end-January 2018.