Govt oil, gas cos to pay lower royalty

The two government-owned oil and gas producers "" Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) "" will together save around Rs 1,300 crore per year with the petroleum ministry allowing them to pay royalty on the final price (net realisation) they get for the crude oil they sell to the country's refiners after giving them discounts. These companies were previously paying royalty on the pre-discounted price (gross realisation).

"ONGC and OIL have been allowed to pay royalty for gas and crude oil sales on the net realisation per barrel rather than on the gross realisation," said a senior oil ministry official. 

SUBSIDY SHARING BY UPSTREAM COMPANIES (Rs cr)
	2006-07	2007-08
ONGC	17,026	22,000
OIL	1,994	2,200
GAIL	1,488	1,400

The royalty payment, at 20 per cent, on net realisation will be applicable from the 2008-09 financial year.

In 2007-08, ONGC, the largest producer of crude oil in the country, sold oil at an average price of around $92 per barrel. After discounts to the crude oil refiners, ONGC realised around $55 per barrel of crude oil.

ONGC gives discounts to government-owned crude oil refiners which also market petroleum products to partly make up for these companies' retail losses.

The oil marketing companies "" Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) "" sell fuels at subsidised prices.

"By paying royalty on net realisation, we are likely to save over Rs 1,000 crore in 2008-09. This is a relief as our share in the subsidy burden sharing is going up every year," said a top ONGC official. The subsidy burden is around 7 per cent of the company's net profits.

OIL will save "between Rs 300 crore and Rs 350 crore," said a company official. In 2007-08, the company's gross realisation from a barrel of crude oil was $90 per barrel, while its net realisation was $60 per barrel.

More subsidy payout
ONGC and OIL will together bear 31 per cent of the Rs 77,300-crore retail losses of government-owned oil marketing companies in 2007-08. ONGC's share will go up to Rs 22,000 crore, higher by 29.21 per cent, from the Rs 17,026 crore it paid in 2006-07. OIL will pay around Rs 2,200 crore, up 10.33 per cent from the Rs 1,994 crore in 2006-07.

GAIL's share, however, will be 5.91 per cent lower at around Rs 1,400 crore compared with Rs 1,488 crore in 2006-07. GAIL, which produces LPG, also gives discounts to oil marketing companies for the LPG it sells them.

"Our burden has gone up significantly. This will put a lot of pressure on our balance sheet for 2007-08," said the official with ONGC, the highest profit-making company in the country.

While ONGC's gross realisation has increased steadily with increase in crude oil prices, its net realisation has remained almost stagnant at around the $55 per barrel mark over the last couple of years due to the rising subsidy-sharing burden.

ONGC Chairman and Managing Director RS Sharma recently said if the subsidy-sharing burden continued for longer, the company was likely to make negative margins on crude oil sales. Its margins on gas sales are already negative.