Rs 30,000 cr subsidy promise to help OMCs declare better results tomorrow

In a bid to prevent the oil marketing companies from declaring losses in the second quarter ended September 30, the government has promised a subsidy of Rs 30,000 crore. The three companies- IndianOil, Bharat Petroleum and Hindustan Petroleum will declare their second quarter results tomorrow. IndianOil, the biggest of three has been promised Rs 16,094 crore while the rest will be shared between Bharat Petroleum and Hindustan Petroleum. The actual cash release may take some time.

The three companies together had reported net loss of Rs 40,536 crore in the first quarter of the fiscal as no government compensation was declared. The compensation promise of Rs 30,000 crore is likely to help these companies declare a profit in the second quarter though they will continue to be in the red for the first half of the fiscal.

The three companies sell diesel, kerosene and domestic cooking gas (up to 6 cylinders per consumer) at government dictated rates. The loss incurred in the process is compensated by a mix of government subsidy and cash discounts offered by ONGC and OIL on crude sales to oil marketers. While the discounts are adjusted on a regular basis, the government compensation comes with a lag.

In the first quarter this year, these together incurred a revenue loss of Rs 47,811 crore on sale of the three regulated products. Of this, an amount of Rs 15,060 was offset in the form of discounts received from ONGC and OIL. However, no relief came from the government. The revenue loss of the second quarter is estimated at Rs 37,775 crore.

Of this, Rs 15,094 crore has been compensated by ONGC, OIL and GAIL.