Govt exempts ONGC, OIL from LPG subsidy payments

Government will fully meet subsidy burden of LPG in 2015-16, says Oil Secretary

In a big boost to domestic oil and gas exploration, the government has decided to exempt state-owned ONGC and Oil India from paying for LPG subsidies in current fiscal, Oil Secretary Saurabh Chandra said today.

"Government will fully meet subsidy burden of LPG in 2015-16," he said at FICCI roundtable on Hydrocarbons here.

The government regulates price of cooking fuels LPG and kerosene to shield the poor. The difference between the cost and the retail selling price, called under-recoveries, is borne by the government by way of cash subsidy and upstream producers like ONGC.

Upstream oil and gas producers ONGC, OIL and GAIL had to borne a portion of subsidy on cooking fuels LPG and kerosene and diesel till October 2014. After diesel price was deregulated in October 2014, the subsidy sharing was limited to LPG and kerosene.

"Since upstream national oil companies contribution to under-recoveries is reduced, to that extent their resources are freed to invest in exploration and production," he said.

Chandra said the government has exempted Oil and Natural Gas Corp (ONGC) and OIL from payment of fuel subsidy in the fourth quarter after the Finance Ministry agreed to meet the revenue loss on fuel sales.

The Finance Ministry will pay Rs 5,324 crore in fuel subsidy for the January-March quarter, effectively meeting all revenue retailers losses on selling domestic LPG and kerosene at government-controlled rates.

Under-recoveries, or revenue retailers' loss on selling fuel below cost, of Rs 67,091 crore in first nine months of the fiscal were fully accounted for by the subsidy support and dole out from upstream firms like ONGC.

The under-recoveries of Rs 5,324 crore for the March quarter are being entirely borne by the government.

The Oil Secretary said since the government is paying LPG subsidy directly to consumers in their bank accounts under the Direct Benefit Transfer scheme, it has been decided that this will be entirely met from the Budget.

ONGC and OIL will have to bear subsidy on only kerosene in 2015-16, he said.

Based on average crude oil price of $60/barrel, LPG subsidy for 2015-16 may be about Rs 18,000 crore and assuming crude at USD 70/barrel, it could be in the vicinity of Rs 25,000 crore. For Kerosene, it will be Rs 13,000 crore at USD 60/barrel and Rs 16,500 crore at USD 70 per barrel oil price.

In the first nine months of 2014-15, the government gave cash subsidy of Rs 22,085 crore to meet less than a third of the under-recoveries on cooking fuel and diesel (up to October 17).