Share gas losses: ONGC

Wants under-recoveries on natural gas to be part of Subsidy pool

Oil and Natural Gas Corporation (ONGC) has urged the government that the under-recoveries it suffered on the sale of natural gas be made a part of the subsidy pool.

The under-recovery can be benchmarked to the market price of gas being sold by private or joint venture producers, or being sold as regasified natural gas.

ONGC was suffering a Rs 2,800-crore annual loss on account of selling natural gas at unremunerative prices prior to July 1, 2005. The gas price has since been revised to Rs 3,200 from Rs 2,850 per thousand cubic metre but it is still about 40-50 per cent less than the price at which gas is being sold by other companies.

While ONGC demanded this, Hindustan Petroleum Corporation, one of the four marketing companies bearing the brunt of non-revision of petroleum prices, in its representation to the petroleum ministry, suggested that the share of upstream companies, including ONGC, should be revised to 50 per cent of the total loss incurred on the sale of subsidised kerosene and domestic LPG as also petrol and diesel.

Upstream companies, ONGC, Gail India and Oil India, were sharing one-third of the subsidy loss during 2003-04 and 2004-05. Another one-third was borne by oil marketing companies and the remaining one-third was built into the price of petrol and diesel.

The non-revision of petroleum prices this year has resulted in the oil marketing companies suffering negative margins on petrol and diesel as well, though till last year, the losses were only on LPG and kerosene.

The suggestions are in response to discussions among oil companies on evolving a subsidy-sharing mechanism for the current year. The upstream company's under-recovery share is decided on a quarterly basis.

In a letter to the ministry of petroleum, the ONGC management maintained that the share of the government in subsidy losses had consistently declined between 2002-2005.

In view of the temporary increase of ONGC profits, which rose due to a spurt in international oil prices, the company demanded that the sale of domestic LPG and kerosene should be on the net-back price. This will ensure 100 per cent absorption of under-recoveries in the hands of producers.

"Any other formulation will result in transfer of profit from ONGC to those refineries, including private sector refineries, which do not share the under-recoveries and as such will be the subject matter of adverse comments of audit and severe criticism from the investors' community," said the company in the letter.

The under-recoveries on account of retail sales of the four petroleum products were Rs 9,370 crore in 2003-04. They rose to more than 100 per cent to Rs 19,910 crore in 2004-05 and are projected to rise to Rs 42,700 crore during 2005-06.

The loss factor

• ONGC has been suffering an annual loss of Rs 2,800 crore on account of selling natural gas on unremunerative prices prior to July 1, 2005
• Gas price has since been revised to Rs 3,200 from Rs 2,850 per thousand cubic metre but it is still about 40-50 per cent less than the price at which gas was being sold by other companies
• The non-revision of petroleum prices this year has resulted in oil marketing firms suffering negative margins on petrol and diesel