Petrol Stop - Subsidy burden zooms for ONGC & OIL, to impact Q3 nos

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Subsidy burden zooms for ONGC & OIL, to impact Q3 nos

Thursday, 26 January 2012

27 Jan 2012;business-standard.com:Ajay Modi:New Delhi: The subsidy burden of upstream oil companies Oil Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) have more than doubled in the third quarter ended December 31. ONGC’s subsidy burden for the quarter is Rs 8,875 crore, compared to Rs 4,222 crore in the corresponding quarter of last year. OIL’s burden is expected to jump 135 per cent to Rs 1,313 crore. “This year, the upstream companies will probably have to bear the highest ever burden towards oil subsidy, as prices have not been increased for long and under-recoveries of the three oil marketers will be at a record high,” said an OIL official. The two government upstream companies, along with GAIL, make good a third of the losses made by government oil marketing companies (OMCs) on selling diesel, kerosene and LPG at government rates. The OMCs — Indian Oil, Bharat Petroleum and Hindustan Petroleum — purchase crude oil at market rates but are required to sell diesel, kerosene and liquefied petroleum gas (LPG) at government-set prices. These losses are usually compensated by a cash subsidy from the government and discounts on crude purchase from ONGC and OIL. For the quarter just ended, the OMCs incurred a revenue loss of Rs 32,413 crore on regulated sale of the three products, of which a third, or Rs 10,805 crore, has to come from ONGC, Oil India and GAIL. Currently, the three OMCs are incurring a revenue loss of Rs 442 crore daily on sale of the three products. Their loss is Rs 12.95 on every litre of diesel, Rs 28.50 on every litre of kerosene and Rs 326 on every domestic LPG cylinder. The prices of these three politically sensitive products, that account of around 60 per cent of OMC sales, have not been revised since June 25 last year. Their prices are unlikely to be revised till early March, when five state assembly polls conclude. In 2010-11, upstream companies were made to bear 38.8 per cent of the OMCs’ gross revenue loss. This year, so far the one-third formula has been followed for calculating their subsidy share. However, watchers expect the share to be increased during the fourth quarter.