To tackle the rising petroleum subsidy burden, the government is considering capping the price that government-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) realise on crude sales.
“The finance ministry is thinking of some formulations for subsidy sharing, including giving ONGC and OIL a fixed price on crude oil,” a petroleum ministry official said. Under the current system, the two producers are entitled to the international oil price for the 28 million tonnes of crude they produce annually.
However, they also have to make good at least a third of the revenues that the government-owned fuel retailers — Indian Oil, Bharat Petroleum and Hindustan Petroleum — lose on selling diesel, domestic LPG and kerosene at the state-controlled price.e.
Under the new mechanism under discussion, ONGC and OIL would get a capped price of $55-60 per barrel instead of the current international rate of $110 a barrel. The realisation over the cap would be used to subsidise diesel, domestic LPG and kerosene.
The official said about Rs 50,000 crore could be garnered through the formulation, which would replace the existing system where ONGC and OIL give ad hoc discounts on the crude they sell to refiners to make up for the latter’s losses. The amount is higher than the Rs 45,000 crore share the two companies would have given under the one-third mechanism.
The other possibility being discussed is that the current mechanism stays but the share of ONGC and OIL gets limited to no more than 38 per cent, the level in 2010-11.
The official added the ministry was against imposing any burden on the oil marketers, since they’d end up losing heavily on any petrol sale below cost and the high interest burden due to delay in government compensation. Indian Oil, Bharat Petroleum and Hindustan Petroleum are projected to lose close to Rs 140,000 crore on selling diesel, domestic LPG and kerosene below cost during the current financial year. Of this, a third would be made good from ONGC and OIL. The rest has to come in the form of cash compensation from the government. The finance ministry has expressed deep concern over the widening fiscal deficit and had proposed the new subsidy-sharing formula.
The official said ONGC and OIL were comfortable with getting a capped price, provided the ceiling was made known to them at the beginning of the financial year, so that they could budget their expenses accordingly.
For 2011-12, the finance ministry has provided Rs 30,000 crore to the oil companies, which covers less than half of the Rs 64,900 crore revenue loss on fuel sales in the first half of the year. About Rs 32,000 crore has been the revenue loss in the third quarter, of which the petroleum ministry wants the finance ministry to provide two-thirds, or Rs 22,000 crore.
