Govt's extra dole gives OMCs buffer against price rise

Sparring over subsidy numbers has become passe, with the Union government providing more than the required subsidy on cooking gas to oil marketing companies (OMCs), giving them a cushion against future price rise.

Indian Oil Corporation , the largest marketer of petroleum products in the country, alone got Rs 700 crore extra in the first quarter.

The extra amount is being collected in a pool account. The government has fixed its subsidy payout to OMCs for kerosene sales at Rs 12 a litre and LPG sales at Rs 18 a kg (Rs 255 per 14.2 kg domestic gas cylinder). "We are getting LPG subsidy from the government at Rs 18, though the refinery gate price comes to Rs 14 per kg. The balance Rs 4 per kg is being collected in a pool which we will tap when prices go up," said a senior IndianOil executive.

Global crude oil prices, after recovering from a historic slump between June 2014 and January 2015, have started sliding again. The Indian crude basket stands at $48 a barrel, the lowest in at least six months.

Indian Oil suffered under-recoveries of Rs 2,600 crore in the quarter ended June on subsidised kerosene sales. The government has compensated the firm for these losses to the extent of Rs 1,732 crore. The upstream firms -Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) - had to bear the rest of the burden of Rs 878 crore.

The government had rolled out the modified direct benefits transfer in LPG (DBTL) scheme in January, transferring the per-cylinder subsidy directly into beneficiaries' accounts to cut subsidy leakages. With almost all consumers covered under the scheme, OMCs currently do not incur loss on subsidised LPG sales.

Consumers are currently entitled to twelve 14.2-kg cylinders or 34 5-kg bottles in a year at subsidised rates. Any requirement above that has to be procured at market price. A subsidised 14.2-kg cylinder is available at Rs 417 in Delhi against the market price of Rs 585.

The OMCs suffered total under-recoveries of Rs 72,000 crore on sales of subsidised petroleum products last financial year. This included Rs 36,000-crore losses on LPG sales alone. Thanks to the rollout of DBTL and the subdued global crude prices, the three OMCs have not registered any LPG losses in the quarter ended June.