Fuel under-recovery down but ONGC remains 'cash cow'

Overall under-recovery for Q1 of 2013-14 dropped to Rs 25,509 crore from Rs 47,811 crore during first quarter of 2012-13

The first quarter of the financial year might have seen a 46% drop in the under-recovery of oil marketing companies (OMCs) but for the government’s “cash cow” Oil and Natural Gas Corporation Ltd the quarter saw its contribution jump to 48% of the overall oil subsidy.

At a time when the overall under-recovery for the Q1 of 2013-14 dropped to Rs 25,509 crore from Rs 47,811 crore during the first quarter of 2012-13, ONGC's share remained the same at around Rs 12,300 crore, while it was Rs 12,345.79 crore last year.

“This is an alarming situation, as per the provisional figures of Q1, it is almost the same as the previous financial year. Earlier their used to be a thumb rule of sharing 30% of the burden. Now, it has increased as upstream players were asked fixed discount of $56 a barrel, which in ONGC’s case increased to even $62.9 per barrel factoring in the condensate quantity,” said a senior ONGC executive.

According to an official source close to the development, ONGC's realisation post discounts has also come down to the range of $40-42 per barrel during the first quarter, which was around $47.85 for the previous financial year. The company has already written to the government seeking a higher retention amount of $65 per barrel from this.

During the first quarter, of the financial year, the under-recovery on diesel was instrumental in bringing down the overall figures. The diesel under-recovery came down 64% to Rs 10,554 crore during the quarter, compared to Rs 29,042 crore during the same period last year pushed by measures like diesel decontrol.

The loss figures on domestic LPG also dropped 35% from Rs 11,495 crore during the Q1 of 2012-13 to Rs 8,518 crore in the first quarter of the current financial year.  The under-recovery on kerosene stood at Rs 6,507 crore, as against Rs 7,274 crore during the first quarter last year.

The retention figures are down during the quarter because of a drop in international prices.

ONGC’s contribution to under-recovery figures has increased 327% to Rs 49,421 crore in 2012-13, as against a mere Rs 11,554 crore during the financial year 2010.

“In the last 10 years, we have contributed about Rs 2,16,336 crore as under-recovery and its accumulated impact to our profit after tax during the period was around Rs 1,25,477 crore. Hence, when the ministry is now expecting a higher under-recovery during this financial year also owing to a fall in rupee, it is causing jittery nerves for us,” A K Banerjee, dierctor (finance), ONGC said.

A Rupee 1 fall in domestic currency value versus dollar would cost oil marketing companies Rs 9,000 crore annually in the form of under-recovery, while every $1 increase in crude oil prices would add another Rs 5,000 crore annually to the subsidy burden.