Govt picks up the tab for ONGC, OIL Q4 fuel subsidy

The government has exempted oil producers ONGC and Oil India Ltd from payment of fuel subsidy in the fourth quarter after the finance ministry agreed to meet all of the revenue loss on fuel sales.
The ministry this week, in a letter to the Oil Ministry, said it will pay Rs 5,324 crore in fuel subsidy for the January-March quarter, effectively meeting all of the revenue retailers lost on selling domestic LPG and kerosene at government-controlled rates.
Official sources said while the finance ministry sent the comfort letter, actual disbursals will happen only next month.
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, 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, they said.

In the first nine months, 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 57-58 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 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.