ONGC may bear Rs 12,300 cr subsidy burden

Oil and Natural Gas Corp (ONGC) may have to shell out a record Rs 12,300 crore in fuel subsidies in the April-June quarter as the government deters from raising retail fuel prices. Retailers Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum are likely to see about Rs 45,000 crore of revenue loss on selling diesel, domestic LPG and kerosene at government controlled rates in the April-June quarter. As per practice, at least one-third of these losses will have to be borne by upstream firms. So, ONGC, Oil India Ltd and GAIL India will together take a hit of about Rs 15,000 crore. Of this Rs 15,000 crore, ONGC's share is the biggest at around 82 per cent. As per this formula, ONGC will have to shell out Rs 12,300 crore in fuel subsidy in the April-June quarter. But if the formula used in the January-March quarter, when upstream firms were made to bear 38.5 per cent of the total revenue loss, is applied, the share of ONGC will rise to a whopping Rs 14,206 crore. Upstream firms, as per this formulation, would have to pay Rs 17,325 crore in fuel subsidy.

ONGC had in January-March quarter given discounts on crude oil it sells to refiners totaling Rs 12,136 crore, the highest ever subsidy payout. The three fuel retailers are losing about Rs 460 crore per day on selling diesel, domestic LPG and kerosene below cost. An Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee, which decides on revising rates of the sensitive products, has not met since June last year even though crude oil prices have spiraled upward by about 50 per cent.

State-owned oil firms had last month hiked petrol prices by a steep Rs 5 per liter and are looking at another small increase next week. Petrol prices were freed from government control in June last year and IOC, BPCL and HPCL have the freedom to fix retail rates but retail prices are sill Rs 1.98 per liter short of their imported cost. Oil firms are losing Rs 15.44 on the sale of every liter of diesel at the current price of Rs 37.75 per liter in Delhi. In addition, state oil firms lose Rs 27.47 per liter of kerosene and Rs 381.14 per 14.2-kg domestic LPG cylinder. The three firms may end the fiscal with a revenue loss of Rs 166,712 crore, at least half of which will have to be met by the government from its Budget. The rates for the three products were last hiked in June 2010, when crude was ruling at USD 72 per barrel. The basket of crude oil India buys averaged USD 110 a barrel this month.