Under-recoveries (the gap between retail selling price and the cost of import) of state-run oil marketers will fall by 58 per cent if the average Indian basket crude price remains at USD 51 a barrel and the rupee trades at 65 to the dollar, rating agency Icra said in a report today.
During the first half of this fiscal, the Indian basket crude prices fell 47 per cent, while direct cash transfers rose for LPG and kerosene.
Also, diesel under-recoveries came to an end. This led to a whopping 69 per cent fall in under-recoveries to Rs 15,940 crore in the first half of this fiscal from Rs 51,110 crore, Icra said.
Also Read
Already, over 20 lakh households have voluntarily given up their cooking gas subsidy and there are over 20 lakh people who earn over Rs 10 lakh annually, it said.
Under-recovery sharing of upstream players like ONGC and OIL too came down drastically to Rs 1,980 crore from Rs 3,190 crore in H1, while for the upstream companies the share was a paltry 12 per cent on a lower under-recoveries against 62 per cent in the first half of 2014-15.
This was more pronounced in the second quarter at USD 2-2.5 a barrel from USD 56 a barrel, the report said.
Also, in line with falling crude prices, gross realisations of upstream companies declined by 45 per cent in H1. But due to a material fall in subsidy burden, net realisations showed an improvement in H1 on an annual basis.
In absolute terms, subsidy burden of ONGC came down by
It can be noted GAIL is exempted from under-recovery sharing since Q3 of FY15 and this is likely to continue.
In August, the government said it would share under- recovery up to Rs 12/litre on PDS kerosene, while the balance will be borne by the PSU upstream companies. With regards to domestic LPG, it approved a fixed subsidy capped up to Rs 18/kg under the direct benefit transfer scheme, which translates to Rs 255.6 per cylinder.
Icra estimated the upstream discount going forward in the near to medium term will be low, ranging from nil to USD 5 a barrel for gross crude oil realisations of USD 35 barrel to USD 60 a barrel.
But the report warned their profits may still decline if crude oil prices sustain at current low levels. Crude prices are trading at USD 35-40 a barrel since the past many weeks and many are betting at USD 20 soon - a steep fall from USD 55-60 in the beginning of the year and from USD 114 from June 2014, when the prices began to nosedive.
"Besides, fall in domestic gas prices this April and subsequently again this October will lead to deterioration in the profitability of the upstream players during FY16," Icra warned.
However, the report said it expects a marginal upside to crude oil production in 2016 following the conducive policy environment in the country such as auction of small and marginal fields.
Icra believed several of these new measures proposed in the consultation paper are in keeping with the long standing demand of the incumbents and are in line with the global best practices in the E&P sector.