ONGC, OIL may get exemption from sharing fuel subsidy in Q4

The government is likely to exempt state-run oil producers ONGC and Oil India Ltd from payment of fuel subsidy in the fourth quarter ending 31 March, a senior petroleum ministry official said on Friday.

This is because of both a fall in the price of crude oil and additional revenue to the government from additional excise duty on petrol and diesel.

"We have a verbal assurance from the finance ministry that upstream companies will not have to bear any subsidy in the fourth quarter," the official said on the sidelines of 'Urja Sangam' conference in the capital.

The petroleum ministry had, earlier, projected that the government will earn Rs75,944 crore from excise duty on petrol and diesel this fiscal and even after paying for Rs39,101 crore subsidy (Rs17,000 crore of first half and Rs22,101 crore in second half), it will be left with Rs36,843 crore.

While the government regulates price of cooking fuels - LPG and kerosene - to shield the poor, it is simultaneously looking at ways of reducing the subsidy burden.

Inaugurating the Urja Sangam, Prime Minister Narendra Modi launched a campaign called 'Give it up' for citizens to give up subsidised LPG connection especially, those who can afford to pay market price for LPG cylinder.

He assured that each surrendered subsidised cylinder will go to poor people and the saving will be used for poor. He announced that as of now, 28 million people have given up subsidised connection, which resulted in a saving of Rs100 crore.

Modi also used this occasion to fix a target of 1 crore piped gas connection in the next four years from 27 lakh at present.

At present, the difference between the cost and the retail selling price is borne by the government by way of cash subsidy and upstream producers like ONGC.

Under-recoveries or losses to fuel retailers on selling fuel below cost are projected to be Rs74,773 crore in the 2014-15 fiscal. Of this, Rs67,091 crore has already been accounted for in the first nine months of the fiscal.

The remainder of the under-recoveries can be borne by the government, he said, adding that this subsidy will be rolled over to the next fiscal.

"This is what is our broad understanding from the finance ministry though I must add that we have not seen any letter from them to this effect," he said.

In the first nine months, the government gave cash subsidy of Rs22,085 crore to meet less than a third of the under-recoveries on cooking fuel and diesel (up to October 17). Upstream oil producers ONGC, OIL and GAIL chipped in Rs42,822 crore.

The upstream subsidy contribution is by way of discount on crude oil they sell to refineries. With international oil prices almost halving to $50 per barrel, providing the subsidy discounts would have meant they got rates way below their cost of production.

ONGC's cost of production is around $40 per barrel.

The official said the finance ministry is likely to pay Rs7,682 crore as cash subsidy for the fourth quarter.