Oil PSUs seek subsidy of Rs 13,410 cr for Q1 FY15

The oil companies have sought a subsidy of around Rs 13,140 crore for the first quarter of the current financial year 2014-15.

The demand has been raised on an urgent basis towards under recovery of oil marketing prices. According to official sources, the first quarter results for the oil marketing companies are due any time and thus these payments are under serious consideration of the Finance Ministry.

The total under recovery for the first quarter is around Rs 28,690 crore, out of which the upstream contribution from oil exploration companies are at Rs 15,546 crore.

Public sector oil marketing companies (PSU OMCs) last week had decided to increase retail diesel price by Rs 0.50 a litre and cut retail petrol prices by Rs 1.09 a litre. The under-recoveries for the financial year 2014-15 are projected to be Rs 91,665 crore while the figure was Rs 1,39,869 crore in 2013-14.

According to market reports, given the efforts to move towards market-linked diesel prices and an expected decline in crude oil prices, under-recoveries on petroleum products are expected to drop to half those in 2013-14 through this financial year. Thus the decline in under recoveries will have a significant positive impact on both upstream and downstream public-sector oil companies.

In a report released by CRISIL, if the benefit from a potential rise in gas price to $8.4 a million British thermal units (mBtu) is taken into account, upstream companies’ profit after tax  will further increase by Rs 7,000-7,500 crore in 2014-15, resulting in an overall increase of Rs 21,500-23,000 crore.

In the past few years, high under-recoveries on sale of petroleum products have hit the financials of oil companies (both upstream and downstream). This is because petroleum products like diesel, liquefied petroleum gas and kerosene are sold in India by downstream public-sector oil marketing companies (OMCs) at regulated prices, well below the cost while the petrol prices were de-regulated in June 2010. The resultant loss is usually shared by three parties — the government, upstream oil companies (Oil and Natural Gas Corporation, Oil India Ltd and GAIL) and oil marketing companies (Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation) — in a proportion determined by the government every year.

Through the years, the sharp increase in overall under recoveries and, consequently, the government’s contribution to under recoveries has led to a surge in the interest cost of OMCs, the report says. The interest cost has risen due to a significant rise in working capital requirements, owing to delay in payments from the government. The sharing of under recoveries between the government and public-sector upstream and downstream companies is on an ad hoc basis, depending on the financial positions of these companies, as well as government finances.

In the past few years, with under-recoveries soaring from Rs 77,100 crore in 2007-08 to Rs 1,40,000 crore in 2013-14, the contribution of upstream companies towards under recovery-sharing (in absolute terms) increased from Rs 25,700 crore in 2007-08 to Rs 67,000 crore in 2013-14. As a result, these companies have not benefited from the combined effect of high crude oil prices and a weak rupee, stated the report.