ONGC, Gail, OIL slip on new subsidy formula

The share of upstream oil and gas companies like Oil and Natural Gas Corporation, GAIL (India) Ltd and Oil India Ltd in the subsidy on petroleum products has more than doubled under a new formula announced by the government. ONGC has written to the petroleum ministry complaining about the formula.

The company said it had already given discounts of Rs 2,876 crore to oil marketing companies during the first quarter of the current financial year as its share of the burden, though it should give discounts of Rs 1,380 crore during 2005-06.

According to estimates, discounts given by the upstream companies now stand at Rs 14,000 crore for the year, a whopping jump from Rs 5,948 crore last year.

Under the new formula, ONGC's share of the subsidy burden will be Rs 12,320 crore. ONGC will also be asked to pitch in through a special dividend which will not make up for under-recoveries but cover a part of the Rs 6,000-crore shortfall in the Centre's revenue from the petroleum sector.

"If we factor in the Rs 12,000-crore bonds and Rs 3,700-crore oil subsidy, ONGC alone will bear as much burden as the government," said a petroleum ministry official.

The calculations have been based on the government's decision to issue oil bonds to the oil marketing companies, the price revision and the earlier subsidy-sharing formula.

The previous formula was used for the upstream companies to take over a third of the under-recoveries. The remaining used to be borne by the oil marketing companies.

The government had, on September 6, decided that upstream companies would have to bear Rs 14,000 crore of a total of Rs 40,000 crore of under-recoveries expected to be incurred during 2005-06 because of selling petrol, diesel, kerosene and LPG below the import parity price.