Subsidy share of ONGC, OIL, GAIL to rise in Q3

Burdened by the highest fuel subsidy this year, the government has increased subsidy contribution of upstream oil companies, Oil and Natural Gas Corporation (ONGC), Oil India Ltd (OIL) and GAIL India to 38 per cent for the nine months ended December 31, 2011, at Rs 36,894 crore. This is higher than the 33 per cent paid during the first six months. In the FY11, upstream companies shared 39 per cent of total subsidy.

The government oil marketing companies (OMCs) — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) — purchase crude oil at market rates but are required to sell diesel, kerosene and liquified petroleum gas (LPG) at government-set prices, resulting in losses. These losses are usually compensated by a cash subsidy from the government and discounts on crude purchase from ONGC and OIL.

The three companies lost Rs 97,300 crore in revenue on selling diesel, LPG and kerosene at government controlled rates during the first nine months of the current financial year. “Of this, the upstream companies have been asked to make 38 per cent or Rs 36,894 crore,” an oil ministry official said. It is estimated that the revenue loss on selling controlled fuel at less than market price would nearly double to Rs 1,40,000 crore this year.

The government has so far provided Rs 30,000 crore in cash subsidy to make up for more than half of the revenues that IOC, BPCL and HPCL lost on fuel sales during the first half. Upstream firms made one-third of the revenue loss. The government has not yet provided subsidy for the third quarter.

ONGC, Oil India and GAIL India had in first six months paid fuel subsidy at the rate of 33.33 per cent. And so, they will pay extra in the third quarter to average the payout at 38 per cent for the April-December period.

The official said, ONGC will pay Rs 30,296 crore in the nine month period, up 42 per cent over Rs 21,291 crore in the same period a year ago.

ONGC has paid Rs 17,760 crore in the first half and so it will provide an additional Rs 12,536 crore in the third quarter. Oil India will pay Rs 4,478 crore in fuel subsidy in the April-December period as opposed to Rs 1,596.68 crore in the corresponding period of last year. It had in first half paid Rs 2,625.09 crore in fuel subsidy and would give a further Rs 1,852.91 crore in the third quarter.

GAIL’s share has been fixed at Rs 2,120 crore for the first nine months of current financial year.