Govt may exempt ONGC, OIL from fuel subsidy paymenthttps://indianexpress.com/article/business/commodities/govt-may-exempt-ongc-oil-from-fuel-subsidy-payment/

Govt may exempt ONGC, OIL from fuel subsidy payment

The Modi-led government has budgeted the highest disinvestment target of Rs 69,500 crore for FY16.

The big reduction in oil subsidies from a level of Rs 1.6 lakh crore in FY13 and Rs 1.4 lakh crore in FY14 to about Rs 75,000 crore in FY15 is finally coming to the help of the upstream oil companies as well.

ONGC, Oil India and GAIL (India), which together bore a subsidy burden of Rs 67,000 crore, almost as much as the government, in FY14 and around Rs 43,000 crore or almost twice as the government in the first three quarters of FY15, may be spared of the obligation in the last quarter.

A petroleum ministry official said on Friday that a “verbal assurance” has come from the finance ministry that says the upstream oil majors, which have seen a relentless increase in their subsidy burden until FY14, won’t have to shell out any amount (in the form of discounts on crude sales) for January-March 2015.

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The Modi-led government has budgeted the highest disinvestment target of Rs 69,500 crore for FY16. Achieving this target hinges on expeditious sales of government stakes in some maharatna firms, including ONGC, in the case of which 5 per cent stake sale is planned. In the last fiscal, ONGC sold every barrel of crude oil for $ 106.72.

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However, it has to bear a subsidy of $65.75/barrel to compensate state-owned oil marketing companies (OMCs) leading to a net realisation of just $40.97 a barrel. This trend over the last few years has depleted its cash reserves.

The government’s oil subsidy for the next fiscal is estimated to be just Rs 30,000 crore, thanks to expectations of benign oil prices, decontrol of diesel and the direct benefit transfer scheme for LPG subsidy disbursal. Though lately the threat of an oil shock due to the unrest in West Asia emerged, the government still hopes that the crisis would wither away and oil prices won’t skyrocket.

Oil minister Dharmendra Pradhan said on Friday that his ministry was working to formulate a subsidy-sharing mechanism with the finance ministry. This mechanism would be based on the principal that “the profitability of the government and the companies are not impacted,” he said.