OilMin to move Cabinet for reducing subsidy burden on ONGC,OIL

Oil Ministry plans to go to the Cabinet seeking a minimum USD 65 per barrel price for state oil and gas explorers like ONGC to help bring 70 million tons of oil to production, Oil Secretary Vivek Rae said today.
Speaking on sidelines of Petrotech pre-event conference, Rae said the USD 40-42 per barrel net price realised by ONGC after paying for fuel subsidies, is barely enough to meet its costs.
"Upstream companies (like ONGC) bear disproportionately high subsidy burden. They need to generate investible surplus," he said, adding USD 65 is the minimum price that is needed to help bring marginal and deeper fields into production.

Upstream firms pay for a portion of fuel subsidies by extending discounts on crude oil they sell to refiners who are forced by the government to sell diesel and cooking fuel at rates lower than cost of production.
"It makes sense to pay them a price of USD 65 and produce more domestic crude oil rather than pay USD 110 per barrel for importing the same," he said. "We agree that the burden of upstream companies should be reduced."
"They need more money to monetise some of the discoveries. There are certain discoveries which become viable only at USD 65 per barrel price. If they get only USD 40-42, they cannot develop them," he said.

Discoveries in Mumbai High and KG basin on the east coast can produce nearly 70 million tons over a period of time if price is right, he said.

The Kirit Parikh Committee too had last year advocated reducing upstream subsidy burden and Oil Ministry plans to take that report to the Cabinet in few weeks.
"We are circulating the Kirit Parikh report for inter-ministerial consultation. Once we get the comments, we will go to the Cabinet, he said.
The panel had suggested a Rs 5 hike on diesel prices, Rs 250 a cylinder increase in the price of domestic cooking gas and Rs 4 a litre in kerosene oil, with immediate effect to cut subsidy bill.

Rae did not say if his ministry supports his recommendation but said it would be put to the Cabinet for a decision.
The Parikh committee had suggested a slab-based subsidy sharing formula for upstream companies. It had said that ONGC and Oil India share of the total subsidy should be 40 per cent if crude oil prices were below USD 80 a barrel and adding 25 basis points to the share for each USD 1 a barrel increase beyond USD 80 a barrel. If prices were above USD 120 a barrel, the upstream contribution was suggested at half the crude oil price.