The GoI compensation for OMCs decreased by 60% (yoy) and 44% (qoq) to Rs. 100 billion in Q3 FY14, while the same decreased by 35% (yoy) to Rs. 358 billion in 9M FY14 from Rs. 550 billion in 9M FY13. Further, in its interim budget, the GoI kept fuel subsidy provision of Rs. 855 billion for FY14 (RE) with relatively lower carried forward under-recovery of Rs. 350 billion for Q4 FY14 (against Rs. 450 billion carried forward for Q4 FY13). ICRA believes that the fuel subsidy provision for the current year are adequate with the expected total under-recoveries to be around Rs. 1420 billion for FY14, which is expected to be shared by GoI (Rs. 755 billion) and upstream companies (around Rs. 639 billion) leaving modest net under-recovery burden for OMCs. Though the share of GoI is expected to decrease to Rs. 755 billion in FY14 (est) from Rs. 1000 billion in FY13, the share of upstream companies could be marginally higher for FY14 in comparison to FY13 level.
So far, the share of PSU upstream companies reported increase of 6% (yoy) to Rs. 480 billion in 9M FY14 from Rs. 453 billion in 9M FY13. The share of upstream companies increased to 48% in 9M FY14 from 37% in FY13 as the share of ONGC and OIL are fixed in $/bbl and with depreciated INR/US$ level, the value (in Rs. Crore) of under-recovery sharing by PSU upstream companies has increased significantly. GAIL, which shared Rs. 7 billion per quarter of under-recovery till H1 FY14 is not expected to share any burden for H2 FY14, while there is lack of clarity regarding GAIL's share beyond FY14. Although ONGC and OIL have been requesting the GoI to reduce their share of under-recoveries, any decision on the same is unlikely in the short-term.
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