The Government today decided to extend the existing subsidy on domestic LPG and kerosene for a period of three more years from March 31, 2007. It also decided that 42.7 per cent of the total under-recoveries of oil marketing companies (OMCs) this fiscal would be borne by the Government in the form of oil bonds.After a Cabinet meeting, information and broadcasting minister Priyaranjan Dasmunsi said, “The upstream oil companies may share about a third of the total under-recoveries of OMCs.” The oil ministry sent a letter to the finance ministry seeking the release of the first tranche of oil bonds by October 15 so that the OMCs can take it into their books of accounts, said oil ministry sources. The under-recoveries of OMCs on sale of petrol, diesel, kerosene and domestic LPG would be about Rs 54,935 crore during 2007-08. It is estimated that oil bonds worth Rs 23,347 crore ( 42.7 per cent of the under-recoveries) would be issued this fiscal. The oil bonds as a percentage of under-recovery is the same as that last fiscal. In 2006-07, oil bonds worth Rs 24,121 crore were issued.The one third of under-recoveries burden sharing by upstream oil companies, including ONGC, GAIL and OIL, is estimated at about Rs 18,311 crore. In the last fiscal, the upstream firms contributed Rs 20,507 crore. The remaining under-recoveries burden of about Rs 13,277 crore would be borne by downstream OMCs, including IOC, HPCL and BPCL. The Government is providing about Rs 2,680 crore from the Budget to subsidise mass-consumed cooking fuels this year. An oil company official explained that in the present scenario, OMCs are losing Rs 4.34 a litre on petrol, Rs 6.9 per litre on diesel, Rs 15.95 a litre on PDS Kerosene and Rs 175 on each domestic LPG cylinder. During this fiscal, the Indian basket of crude oil touched a high of $78.46 per barrel on September 28 against $75.20 on August 8, 2006. In 2007-08, the Indian basket of crude oil average is $69.74 per barrel compared to $62.46 in the last fiscal, he added.But it is still not clear whether there is the possibility of a domestic LPG or kerosene price hike in the next three financial years. The Government has agreed to retain the subsidy of Rs 22.80 per domestic LPG cylinder and Re 0.83 per litre of kerosene till March, 2010.During this fiscal, the Government has covered the balance loss through burden sharing between upstream and downstream companies and by issuing oil bonds. But in the next three financial years, it would be on a burden sharing basis at the appropriate time. The Government may choose to increase the price of kerosene or domestic LPG, issue bonds or pass the burden to upstream and downstream companies or a mix of all three.3-year spillover• Existing subsidy on domestic LPG is Rs 2,680 crore for 2007-08 •Oil ministry estimates OMC’s under-recoveries at Rs 54,935 crore in 2007-08 •Oil ministry writes to finance ministry for issuing first tranche of oil bonds by October 15•Govt to retain subsidy of Rs 22.80 per domestic LPG cylinder and Re 0.83 per litre of kerosene till March 2010
