Financial Daily from THE HINDU group of publications
Thursday, Sep 30, 2004
Industry & Economy - Petroleum
Oil cos' subsidy burden may double in Q2 ONGC, GAIL, OIL to bear Rs 2,300 cr
Balaji C. Mouli
New Delhi , Sept. 29
THE Petroleum Ministry is actively considering a proposal to nearly double the LPG and kerosene subsidy to be borne together by Oil and Natural Gas Corporation, GAIL (India) Ltd and Oil India Ltd during the second quarter of the current fiscal.
The three companies are set to bear a burden of around Rs 2,300 crore for the second quarter, up from Rs 1,200 crore during the first quarter of the current fiscal.
Once the final amount is decided by Government, the three companies will pay this amount to the public sector oil marketing companies - Indian Oil Corporation, Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and IBP Ltd - which have been selling LPG and kerosene to consumers at a loss owing to non-revision of prices in the wake of rising global crude prices.
The remaining estimated loss of around Rs 2,300 crore will be borne by the oil marketing companies.
"We are actively considering this proposal since global crude prices have risen sharply in the second quarter. This means that on the one hand companies like ONGC make a lot more money, and on the other, the marketing companies are laden with higher LPG and kerosene subsidy bill in the absence of a price revision.
"Hence, the earlier formula of sharing of subsidy - one-third by ONGC, OIL, GAIL and two-thirds by the marketing companies - requires to be revised. The proposal under consideration seeks to make the subsidy splitting on an equal sharing basis between the marketing companies and the others," a senior Government official said.
During the first quarter of the current fiscal, the LPG and kerosene subsidy borne by the public sector oil companies was Rs 3,600 crore. During this quarter, this is expected to rise by another Rs 1,000 crore to Rs 4,600 crore.
Crude prices, which averaged around $34 per barrel in the first quarter of the current fiscal, are set to register a steep rise to $43-44 per barrel during the current quarter.
ONGC's earnings will rise significantly since for every $1 rise in crude prices, the gain per quarter is in the region of Rs 250 crore. Therefore, the increase in profits during second quarter of the current fiscal over the previous quarter is a significant Rs 2,500 crore.
The subsidy losses are a direct result of the Government's tacit intervention to restrain the oil marketing companies from raising prices of kerosene and LPG even as the global price of the products have been soaring in line with hardening global crude oil price.
During the first quarter, ONGC paid around Rs 800 crore, GAIL Rs 250 crore and OIL the remaining Rs 150 crore. In turn, IOC (including IBP Ltd) received around Rs 600 crore, while BPCL and HPCL gaining around Rs 300 crore each.
It is now expected that the increase in subsidy payout during this quarter by individual companies (ONGC, GAIL and OIL) will be on a pro-rata basis to meet the figure of around Rs 2,300 crore.
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