Govt wants ONGC, others to pay Rs 56,700 cr subsidy

The Finance Ministry wants Oil and Natural Gas Corp's (ONGC) fuel subsidy outgo to increase almost double to Rs 47,640 crore this fiscal so that diesel, domestic LPG and kerosene can be sold at below market prices to consumers.

The Ministry wants upstream oil and gas producers like ONGC to meet one-third of the Rs 1.71 lakh crore revenue loss that was projected prior to the June fuel price hike and duty cuts instead of about Rs 1.14 lakh crore (Rs 114,084 crore) actual loss the retailers may suffer on selling fuel below cost this fiscal.

Upstream oil firms bear one-third of the revenue that retailers lose on selling diesel, domestic LPG and Kerosene at government-controlled rates. A similar amount is contributed by the government by way of cash subsidy while the rest is either absorbed by the retailers or passed on to consumers.

Sources privy to the development said the finance ministry wants upstream share to be fixed at Rs 56,707 crore or one-third of the revenue loss estimated before the June price hike and cut in customs and excise duty. Of this, ONGC's share would be Rs 47,640 crore and the rest would be split between Oil India and GAIL India.

It argues that the government has taken a hit of Rs 49,000 crore by way of cut in customs duty on crude oil and petroleum products, and reduction in excise duty on diesel.

Post duty rejig and a Rs 3 per litre hike in diesel, Rs 2 per litre increase in kerosene and Rs 50 per cylinder hike in domestic LPG rates, the revenue loss now is estimated at Rs 1.14 lakh crore. One-third of this comes to Rs 38,024 crore, of which ONGC would have borne Rs 31,943.5 crore.

ONGC in 2010-11 provided Rs 24,892 crore fuel subsidy.

Company officials said they haven't got anything in writing from the government on subsidy sharing but confirmed there were talks of raising ONGC's outgo.

Some industry observers are linking the postponement of the follow-on public offer (FPO) of ONGC to hammering its scrip may see because of increased subsidy outgo.

But ONGC officials maintained that the decision to defer the share sale was taken by Finance Minister Pranab Mukherjee and the Disinvestment Secretary Mohammed Haleem Khan who felt the FPO may not garner the right value keeping in mind the market volatility.

The public issue through which the government is to sell 5% of its shareholding to garner between Rs 11,000 crore to Rs 12,000 crore, was to open on September 20 and close on September 23.

Sources said the FPO can happen by mid-October on the basis of the red herring prospectus filed by the company with the Registrar of Companies earlier this month. Beyond that, it would be required to update the RHP with second quarter earning numbers and refile it.