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Sunday, December 15, 2019

New slab-based formula for petroleum subsidy on the anvil

Plan expected to take into account declining global crude prices.

Written by Surabhi | Amritsar/new Delhi, New Delhi | Published: January 22, 2015 1:47:02 am

The Centre is set to announce a fresh fuel subsidy sharing formula by next month which is likely to be a slab-based formula, taking off from the recommendations of the Kirit Parikh committee.

“The petroleum ministry is working on a new subsidy sharing formula that is expected to take into account the declining global crude oil prices,” said two officials familiar with the matter, adding that a decision is likely over the next few weeks.

According to the officials, the new formula is expected to be a variant of the formula proposed by the Kirit Parikh committee, suggesting slab-based discounts following the global price of crude oil.

The panel, in fresh recommendations submitted in 2013 had suggested further reworked the contribution formula for ONGC Ltd and Oil India Ltd to a 40 per cent share of the crude oil price when it was less than $ 80 per barrel, hiking it to 40 per cent and $0.25 each $ 1 increase per barrel beyond $80, and a 50 per cent share of the crude oil price when it moves beyond $ 120 per barrel.

Petroleum minister Dharmendra Pradhan had announced earlier this month that the government is re-working the subsidy sharing formula and would address issues faced by oil PSUs such as ONGC Ltd.

Sources, however, indicated that the government is likely to roll over some part of the fuel subsidy payments for 2014-15 to the first quarter of next fiscal. “There is a lot of savings on the fuel subsidy front due to declining crude oil prices in international markets, but announcing a fresh subsidy formula does not mean that the payments would also be done this financial year,” said one of the officials.

The international crude oil price of Indian Basket was $45.16 per barrel on Tuesday and the low oil prices are expected to help the Centre save at least Rs 40,000 crore on fuel subsidy in 2014-15.

The announcement of a subsidy sharing plan however, is expected to help the planned disinvestment in oil PSUs including ONGC and Indian Oil Corporation Ltd. While the Centre has planned a 5 per cent stake sale in ONGC Ltd that is estimated to raise at least Rs 11,500 crore, the government is also moving ahead with a 10 per cent disinvestment in IOC that could fetch over Rs 8,150 crore.

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