As part of a long-term solution to keep petrol and diesel prices in check, the government is in talks with Oil and Natural Gas Corp (ONGC) to freeze the price of the crude oil it supplies to oil-marketing companies. According to sources, this could lead to the company getting a waiver on the dividend it pays to the Centre, which is Rs 50-60 billion on an annual basis.
Petroleum Minister Dharmendra Pradhan held a meeting with oil firms on Thursday to find ways to keep fuel prices low despite high global oil prices. The proposals before the Centre include discounts on crude oil or a windfall tax on producers such as ONGC and Oil India.
The windfall tax proposal involves oil producers paying a special tax on any revenue earned from crude oil prices crossing $70 a barrel. The revenue will be used to pay Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) to absorb the fuel price hike.
A government source confirmed that one of the proposals under consideration was part or full waiver of dividend if ONGC sold crude oil to oil-marketing companies at a pre-determined ceiling price. However, this is unlikely to affect the dividend payout to other shareholders. In 20 17-18, ONGC paid a total dividend of Rs 84.70 billion, of which the government's share was Rs 57.36 billion. The government holds a 67.72 per cent stake in ONGC.
An ONGC executive said no such proposal had been made to the company.
Talking to the media on Thursday, ONGC Chairman and Managing Director Shashi Shanker said, “We had no discussions with the government regarding oil prices.” The meeting took place after Shanker made the statement, according to sources.
The plan to place part of the oil price burden on ONGC has been doing the rounds for some time. The finance ministry is not keen to cut the excise duty and was looking at alternative means to reduce fuel prices.
Till June 2015, ONGC and OIL India were bearing a share of the subsidy burden of oil-marketing companies for selling kerosene and LPG below market prices. The subsidy sharing was in the form of a discount on crude oil that ONGC and OIL India sold to oil-marketing companies. “We have done an internal assessment of the impact on government finances if a cut in the excise duty is announced. For every Rs 1 per litre cut, the Centre will have to forgo Rs 140 billion in revenue,” according to a revenue department official.
On Friday, prices of petrol and diesel were cut by 6 paise and 5 paise, respectively, to Rs 78.29 a litre and Rs 69.20 a litre. During the day, Brent crude oil was $77.69 a barrel, while the Indian basket was $75.73 a barrel.