Gail to be exempt from sharing kerosene loss

Company will continue to bear LPG subsidy

In what could be a reprieve for one and penalty for others, Gail India would be exempted from sharing the burden of under recoveries on kerosene.

Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) would end up bearing an additional burden on this account.

Gail had been protesting the government decree on sharing of losses incurred by the oil marketing companies on kerosene on the grounds that they do not produce crude oil from which kerosene is made.

Senior officials told Business Standard, that a decision to exempt Gail from sharing losses on kerosene would be conveyed soon to the company. "It would, however, continue to bear the burden of LPG subsidy since it produces it," said an official.

While ONGC incurred an outgo of Rs 3,114 crore on account of loss sharing with IOC, BPC and HPC for the first three quarters of 2004-05, Gail paid a sum of Rs 1,078 crore. The two companies bore Rs 3,123-crore burden during 2003-04 out of Rs 9,274 crore under recoveries suffered by oil marketing companies during the year.

The government had two years back decided that one-third of under recoveries on account of kerosene and LPG sales would be shared by the upstream companies.

OIL being a small company was exempted from this for 2003-04 but it would be sharing the burden in the current year. The increase in international prices over the past two years have resulted in under recoveries for the marketing companies like Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum since the government does not allow them to charge the import parity price from the domestic consumers.

The spike in international price, however, comes as a windfall for upstream companies producing crude oil or LPG since they are paid import parity price by marketing companies. This made the government come out with the loss sharing formula.

"ONGC adds about $600 to its profit after tax for every $1 increase in international price," said a petroleum ministry official.

The total under recoveries of the oil marketing companies is shared to the extent of one third in the ratio of their incremental profit after tax in a quarter over the same quarter previous year.

The loss sharing was initially for the financial year 2004-05 but was extended to the current financial year.

While ONGC pays the amount in the form of a discount on crude sold to these companies, Gail makes a physical payment for the same.