FinMin hopes for 50% cut in oil subsidy in FY14

Expects bill on this account to be Rs 80,000 cr, half of last year's, and to stay within budget as E&P companies would meet much of this

The government’s subsidy burden on petroleum products increased by Rs 17,000 crore and that of upstream companies (the exploration and production segment, as opposed to the downstream or refining and marketing segment) by Rs 5,000 crore last year, a 20 per cent rise in both.

However, the government expects the overall fuel subsidy burden to be down by about half to Rs 80,000 crore in 2013-14, as against Rs 161,029 crore in 2012-13.

It had budgeted Rs 65,000 crore for the oil subsidy this year, of which Rs 45,000 crore has already gone towards meeting last year’s spillover requirement.

Finance Minister P Chidambaram said on Thursday: “We still have Rs 20,000 crore and another Rs 60,000 crore will come from upstream companies. So, we have got Rs 80,000 crore and we do not think the oil subsidy bill for this year would exceed Rs 80,000 crore.”

This means through measures such as diesel price decontrol, the cap on subsidised cooking gas (LPG) and export parity pricing, the finance ministry expects its share of oil subsidy to come down drastically, by at least 80 per cent.

The subsidy burden on the upstream companies — Oil and Natural Gas Corporation, GAIL India and Oil India — came down to 37 per cent from 40 per cent the previous year, from Rs 55,000 crore in 2012-13 from Rs 60,000 crore the year before.

Following a battle over export parity pricing (EPP), the finance ministry had agreed yesterday to pay Rs 45,000 crore as subsidy for the second half of 2012-13, in a meeting with petroleum minister M Veerappa Moily in the presence of Prime Minister Manmohan Singh.

The finance ministry had already paid Rs 55,000 crore for the first half of the financial year as the government share.

The three state-run oil marketing companies — Indian Oil, Hindustan Petroleum and Bharat Petroleum —have reported Rs 161,029 crore as gross under-recoveries in 2012-13 (from retailing petro products at the government controlled price). This is significantly more than the Rs 138,541 crore in 2011-12.

In 2010-11, the figure was Rs 78,190 crore, with the share of the government at Rs 41,000 crore (52 per cent) and upstream companies at Rs 30,297 (39 per cent).

Since May 16, the three OMCs have been incurring daily under-recovery of Rs  252 crore on the sale of diesel, kerosene and LPG. This was Rs 256 crore a day for the previous fortnight.

The under-recovery on diesel is now Rs 3.73 a litre, kerosene is Rs 27.93 a litre and domestic LPG is Rs 378.38 a cylinder.

In yesterday’s meeting, both ministries had called a truce. It was decided that a decision would be taken once a decision on conversion to EPP from import parity pricing was taken.

This decision would come after a committee led by Kirit Parikh gives its report, expected in two months.