Govt may exempt ONGC, OIL from payment of fuel subsidy in Q4

Government is likely to exempt oil producers ONGC and Oil India Ltd from payment of fuel subsidy in the fourth quarter ending March 31, a senior Petroleum Ministry official said today.

"We have a verbal assurance from the Finance Ministry that upstream companies will not have to bear any subsidy in the fourth quarter," the official said on the sidelines of 'Urja Sangam' conference 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 is borne by the government by way of cash subsidy and upstream producers like ONGC.

Under-recoveries, or revenue retailers' loss on selling fuel below cost, are projected to be Rs 74,773 crore in the 2014-15 fiscal. Of this, Rs 67,091 crore has already been accounted for in the first nine months of the fiscal and compensation mechanism decided.

The remainder of the under-recoveries can be borne by the government, he said, adding that this subsidy will be rolled over to the next fiscal.

"This is what is our broad understanding from the Finance Ministry though I must add that we have not seen any letter from them to this effect," he said.

When contacted, Oil Minister Dharmendra Pradhan said his ministry and the Ministry of Finance are working together to formulate a subsidy-sharing mechanism.

This mechanism will be based on the principal that the profitability of the government and the companies are not impacted, he said. "Their profitability is complementary to each other."

In the first nine months, 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). Upstream oil producers ONGC, OIL and GAIL chipped in Rs 42,822 crore.

The upstream subsidy contribution is by way of discount on crude oil they sell to refineries. With international oil prices almost halving to USD 50 per barrel, providing the subsidy discounts would have meant they got rates way below their cost of production.

ONGC's cost of production is around USD 40 per barrel.

The official said the finance ministry is likely to pay Rs 7,682 crore as cash subsidy for the fourth quarter.

The Oil Ministry had projected that government will earn Rs 75,944 crore from excise duty on petrol and diesel this fiscal and even after paying for Rs 39,101 crore subsidy (Rs 17,000 crore of first half and Rs 22,101 crore in second half), it will be left with Rs 36,843 crore.