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Marginal benefit for ONGC, OIL from rising crude

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Ajay Modi New Delhi

The increase in crude oil prices would marginally improve the earnings of upstream oil companies, Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). This would be in spite of an increasing subsidy burden on these companies, due to the rising underrecoveries of oil marketing companies (OMCs).

The crude oil spike has led to an increase of about eight per cent in gross realisation compared to the second quarter. These companies may improve their net realisation (after bearing subsidy) by close to $2 per barrel if their subsidy burden remains at one-third.

The Indian basket of crude oil has averaged around $83 per barrel in the current quarter, up 10.8 per cent from $74.90 in the previous quarter. However, the price of diesel, kerosene and liquefied petroleum gas, that together account for 60 per cent of petroleum products’ consumption, has not been increased.

 

“Any incremental increase in crude oil price would give us a small increase in our net realisation, assuming the subsidy share of upstream is maintained at one-third. Based on rough estimates, our net realisation may be close to $65 per barrel in the current quarter, up from around $63 in the previous quarter,” said T K Ananth Kumar, director (finance), OIL.

OIL had a gross realisation of $75.48 per barrel in the second quarter ended September 30, while its net realisation was $63.17 after bearing part of the OMCs’ loss on sale of diesel, kerosene and domestic LPG. For ONGC, the gross and net realisation were $79.21 and $62.75, respectively, in the same period.

The OMCs — Indian Oil, BPCL and HPCL — purchase crude oil at market rates but are required to sell diesel, kerosene and LPG at government-capped prices, resulting in losses. These losses are usually compensated by the government through a mix of cash and discounts from the upstream companies, ONGC, OIL and GAIL.

OMCs do not lose on sale of petrol since the government decontrolled its price on June 25. Currently, OMCs are incurring underrecovery (revenue loss) of Rs 4.11 per litre on diesel, Rs 16.88 per litre on kerosene and Rs 272 per cylinder on domestic LPG.

Earlier projections on a lower crude price, the OMCs were expected to lose Rs 53,000 crore this year. The upstream companies would have, thus, incurred a subsidy burden of Rs 17,666 crore. With the latest estimate of Rs 65,000 crore, the upstream firms may have to fork out Rs 21,666 crore.

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First Published: Dec 13 2010 | 12:35 AM IST

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