ONGC cries foul over hike in subsidy burden

Oil & Natural Gas Commission, the state-owned explorer and producer, is far from happy as the government has ordered a hike in its contribution towards the fuel subsidy provided to oil retailers (all three of which are also state-run) from 33.33 to 38.8 per cent.

"This will impact our earnings and it may create some problem for our FPO," ONGC chairman A K Hazarika said in an interview to CNBC-TV18, referring to its planned follow-on public offer of shares.

In another interview on the same channel, Dr Kirit Parikh, a member of the Planning Commission who earlier headed a committee on fuel pricing, said, "Upstream companies are being asked to pay more. It certainly doesn't make much economic sense."

He added, ''If they (the government) had really accepted our recommendation of linking the upstream companies' contribution to the excess blocks with the major of world market price of crude oil increases, then it would have been far more sensible, stable and transparent formula.

"It would have removed lots of uncertainties. It would also not have affected sell price of ONGC stocks. So I do not see why the government is taking such ad hoc decisions.''

Parikh added that he had no clue on the future of oil subsidies and prices. ''Our government - its movements are not very predictable, so I have no prediction on that. You should ask someone in the government what they think about it.''

Asked why the government does not have a fixed subsidy policy, Parikh responded, ''For the life of me I cannot understand. The only thing one can possibly speculate is the government wants to retain a certain degree of flexibility and maybe power over these public sector companies. Otherwise there is no logic to why they cannot arrive at a fairly transparent mechanism.''

The government hopes to raise up to Rs12,600 crore ($2.8 billion) through the ONGC share sale, expected in July, as part of its plan to sell stakes in 60 state-run firms over the next few years, ostensibly to cut its fiscal deficit and garner funds for social welfare programmes.

The government may well garner the funds, thanks to support from institutional buyers (many of which it controls), as in the case of the recent Coal India offering. But where all these funds go is anybody's guess, because as Parikh suggests, public accountability is minimal in India.