 "OMCs may get Rs 11,000 cr more than budgeted subsidy")
According to official sources, the oil marketing companies will receive a total of Rs 33,000 crore of subsidies for the first quarter of the current financial year.
They added that part of the subsidy to the tune of Rs 22,000 crore is rolled over from he last quarter of the last financial year.
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Rest of the amount is proposed to be given in the form of “comfort letter” from the ministry of finance. The entire amount will be given within next week before these companies prepare their financial results.
According to sources, the government had allocated Rs 66,000 crore for petroleum subsidies of which, Rs 45,000 crore was used to pay oil marketing companies for the subsidy gap in the previous financial year.
Accordingly, only Rs 20,000 crore to meet its share of the shortfall between the subsidized price and the market price (under recoveries) and thus rest of the amount was proposed to be given in the form of comfort letter. The new government would announce a full-fledged Budget for 2014-15 around mid-2014.
A comfort letter is a document that an accounting firm prepares to assure the backing of the company or the financial soundness. In case of government affairs, this document refers to the assurance of the state or federal government to a supplier or lender of a public enterprise to support the enterprise for settling its obligations timely.
For the first half of this financial year, the total under recoveries from diesel, kerosene (distributed through the Public Distribution System) and liquefied petroleum gas (LPG) was Rs 60,900 crore. Diesel subsidies accounted for Rs 28,300 crore.
In January this year, the government had announced steps to further deregulate the oil sector by allowing diesel for industrial use to be priced at market prices.
It had also allowed refining and marketing companies to increase the prices for retail diesel 50 paisa a month which led to a steady decline in diesel under recoveries. The government also restricted the number of subsidized LPG cylinders (on which it incurred an average subsidy of Rs 408 each) to nine per family, per year.
Reportedly, Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) would have to shoulder a greater part of the total under recoveries. In first half of this financial year, ONGC and OIL shared the burden of 52.5% of the total under recoveries, against about 40 percent in earlier.
According to a study by the Petroleum Planning & Analysis Cell, the public sector Oil Marketing Companies (OMCs) currently lose Rs 399 crore daily on selling the diesel, PDS kerosene, domestic LPG at government controlled rates.
More specifically, the loss is around Rs 7.16 per litre on diesel and Rs 36.34 per litre on kerosene sold through the public distribution system, while on domestic LPG the oil marketing companies lose around Rs 605.80 crore on sale of each cylinder.
If these subsidies are not compensated, their borrowings from the market will increase. Currently the OMCs has borrowed around Rs 1, 30,000 crore. The government has taken decision to increase the diesel prices by 50 paisa per month and since January 2013 the prices have risen by more than Rs 8.