ONGC pays Rs 272,721 cr in fuel subsidy

Company realised a net price after discounting for subsidies of just $40.97 per barrel for its oil sales in 2013-14

State-owned Oil and Natural Gas Corp (ONGC) has paid a whopping Rs 272,721 crore in fuel subsidy over the past 11 years, denting its profitability.

India subsidises diesel, LPG and kerosene prices. The subsidy burden is shared between the government and upstream oil and gas producers like ONGC and Oil India Ltd.

In an investor presentation after announcing financial results for 2013-14 fiscal, ONGC said it has paid subsidy of Rs 272,721 crore since FY04 but for which its net profit should have been higher by Rs 157,001 crore.

What started with a payout of Rs 2,690 crore in 2003-04 has swelled to a record Rs 56,384 crore in the financial year ending March 31, 2014.

Upstream companies share the subsidy burden by way of giving discounts on crude oil they sell to state-run refiners and marketers.

According to the presentation, ONGC realised a net price after discounting for subsidies of just $40.97 per barrel for its oil sales in 2013-14, down 14% from $47.85 in the previous year and below the break-even rate of $44.

"Retention price of crude oil produced from nomination blocks for FY'14 after paying cess, royalty and VAT is $24.86 per barrel," the company said in the presentation.

ONGC said the price realised in 2013-14 was the lowest in nine years. During this period, while its gross oil realisation had increased by around 80%, net reported realisation had actually declined by 3%.

The government had promised to cap subsidy payout by upstream companies at $56 per barrel so that they can generate surplus to help them invest in finding and developing new reserves.

But this formula hasn't been adhered to in the last three years with discounts exacted ranging from $62.69 per barrel in 2011-12 to $65.75 a barrel in 2013-14.

Because of the low realisation, ONGC has been forced to dip into its cash reserves to meet its annual capital expenditure targets. It will have to take about Rs 3,000 crore from its cash reserves of close to Rs 11,000 crore, to meet the planned capex of Rs 36,059 crore in current fiscal.

ONGC said its net crude price realisation for the fourth quarter of fiscal 2013-14 plunged 35% year-on-year to $32.78 per barrel due to higher subsidy discounts on crude oil sold to state-owned oil refining companies as part of a subsidy-sharing scheme.

This compares with a gross crude oil price of $106.65 per barrel in the quarter. But for the subsidy discount, its net profit of Rs 22,095 crore in 2013-14 should have been higher by Rs 31,524 crore.