Government May Exempt ONGC, OIL from Paying Subsidy this Fisc

Published: 10th January 2015 06:07 AM  |   Last Updated: 10th January 2015 06:07 AM   |  A+A-

NEW DELHI: Sharp decline in global oil prices to around $50 per barrel may prompt the government to exempt state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) from paying fuel subsidy during the remaining part of this fiscal.

With global crude oil prices falling to its lowest level since April 2009, the continuation of the ongoing subsidy-sharing formula would compel ONGC to sell crude oil to refiners like Indian  Oil Corpn (IOC) for free and also pay another $6 per barrel. Such a scenario, according to sources, is leading the government to consider exempting ONGC and OIL from payment of subsidy during the rest of the financial year.

On Thursday, Petroleum Minister Dharmendra Pradhan had said that the government was reworking the subsidy-sharing formula. Sources said, subsidy burden on upstream oil companies has increased from 30 per cent (Rs.32,000 crore) of the total under-recovery in 2008-09 to 48 per cent (Rs.67,021 crore) of the total under-recovery in 2013-14.

ONGC and OIL have repaid nearly half the under-recoveries that retailers incurred by selling cooking gas and diesel till recently at government-controlled rates. This subsidy contribution was through discount on crude oil they sold to downstream firms  that was capped at $56 per barrel in 2013.

In 2013-14, ONGC paid Rs.56,384 crore as subsidy which was a record. Under-recoveries during the current fiscal are pegged at around Rs.73,000 crore. Of this, about Rs.51,000 crore have already been accounted for in first-half where ONGC paid Rs.26,841 crore subsidy, OIL Rs.4,085 crore and GAIL Rs.1,000 crore. Government provided cash subsidy to cover the rest of it.

For the remainder of the fiscal, another Rs.21,000-22,000 crore of under-recoveries are estimated, which can easily be met by government subsidy from budget and sparing ONGC, sources said.

Upstream companies’ contribution to subsidy has significantly constrained their exploration efforts in difficult areas, thereby adversely affecting the country’s domestic oil production. 

Oil ministry officials are of the opinion that unless sufficient funds are made available to increase the companies’ oil recovery capacities, the country may notionally lose more than 70 million tonnes of indigenous crude oil production during the next 10 years. This may lead to an increase in the import bill by Rs.3,33,000 crore. However, indigenous production of this crude oil would only cost Rs.112,000 crore.

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