labels: oil & gas, economy - general, ongc
Government may ease subsidy burden of oil producersnews
20 July 2007

Mumbai: The government will provide for exchange rate losses while calculating subsidy burden on oil producers like Oil and Natural Gas Corporation (ONGC), R S Sharma, chairman and managing director, said.

"We have been given a clear assurance that the impact of the appreciating rupee will be taken into account when subsidies for ONGC is calculated," Sharma said.

ONGC is paid in dollars for the crude oil it sells to marketing companies - Indian Oil (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL).

He said ONGC loses about Rs900 crore annually for every one rupee rise against the dollar. The rupee has strengthened from around 45 against the dollar in the beginning of this year to around 40 at present. This translates to a loss of around Rs4,500 crore for the company, he pointed out.

Sharma, however, said ONGC''s subsidy burden in the April-June quarter is likely to be lower than the Rs5,120 crore paid out in the same period of the previous financial year.

"We are given to understand that the actual losses to retailers on fuel sale and the actual rupee earnings of ONGC will be taken into account when the subsidy sharing is decided," he said.

Indian Oil, Bharat Petroleum and Hindustan Petroleum make huge losses on sales of petrol, diesel, LPG and kerosene as the government, for political compulsions, have not allowed them to raise retail prices in line with rise in global crude oil prices.

These losses are equally divided between the retailers, the government (through bonds) and upstream companies such as ONGC, Oil India and GAIL.

While the high price of crude oil, which is hovering around $72 per barrel, ONGC is expected to end up with less revenue as it converts its dollar payment into rupees.

A stronger rupee, on the other hand, may help the retailers who buy crude oil for processing as they spend less in terms of rupee even though the crude oil prices are high.

"Even though the gross price for crude oil is $70 per barrel this quarter (higher than the $66.33 per barrel earned during the last financial year), net realisation in rupee terms at Rs20,524 per tonne is lesser than Rs21,900 per tonne earned last year," Sharma said.

Alternatively, the government could also reduce the subsidy ONGC hands out to downstream companies to compensate it for a stronger rupee, Sharma pointed out.

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Government may ease subsidy burden of oil producers