Govt mulling cap on ONGC, OIL crude oil price

The government is mulling a cap on the price that state-owned Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) will get for crude oil they produce under a proposed new annual fuel subsidy sharing mechanism.

"The Ministry of Finance is thinking of some formulations for subsidy sharing, including giving ONGC and OIL a fixed price," an Oil Ministry official said.

Currently, ONGC and OIL are entitled to international oil prices for the 28 million tonnes of crude they produce annually. But they also have to make good at least one-third of the revenues that fuel retailers lose on selling diesel, domestic LPG and kerosene at government-controlled prices.

Under the new dispensation being discussed, ONGC and OIL would get a capped price of $55-60 per barrel instead of the international rate of $110 a barrel. Price over-and-above the cap would be used to subsidise diesel, domestic LPG and kerosene.

The official said about Rs 50,000 crore can be garnered through this formula, which would replace the existing system where ONGC and OIL give ad-hoc discounts on crude oil they sell to refiners to make up for one-third of fuel under-recoveries.

The other possibility being discussed is that the current mechanism stays, but the share of ONGC and OIL is limited to no more than 38 per cent, the level of the previous fiscal.

Indian Oil, Bharat Petroleum and Hindustan Petroleum are projected to lose close to Rs 140,000 crore on selling diesel, domestic LPG and kerosene below cost during the current fiscal. Of this, one-third would come from upstream firms, ONGC and OIL.

The rest has to be made good by the government by way of hard cash. The Finance Ministry has expressed deep concern over the widening fiscal deficit and had proposed the new subsidy-sharing formula.

The official said ONGC and OIL are comfortable at getting a capped price provided the ceiling price is made known to them at the beginning of the fiscal so that they can budget their expenses accordingly.

For the current fiscal, the Finance Ministry has provided Rs 30,000 crore to oil companies to cover for less than half of the Rs 64,900 crore revenue loss on fuel sales in the first half. About Rs 32,000 crore was the revenue loss in the third quarter, of which the Oil Ministry wants the Finance Ministry to cover two-thirds, or about Rs 22,000 crore.