Govt to ease subsidy burden on ONGC, OIL, GAIL

04 Feb 2015

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Following a sharp decline in global oil prices, the government has decided to exempt upstream oil companies Oil & Natural Gas Corp and Oil India Ltd from paying for fuel subsidies as long as the crude prices remain below $60 a barrel.

It also proposes to exclude gas supplier GAIL India from paying any more subsidy this fiscal.

A ministry note said that after considering ''suggestions'' from the chief economic advisor, petroleum minister Dharmendra Pradhan approved the upstream burden share as ''status quo'' for the first half of fiscal 2014-15 with a respite in third and fourth quarter where no contribution would be taken from them for crude price ''less than and equal to $60 a barrel''.

Last week, Pradhan approved the graded sharing mechanism where both upstream companies would have to shell out 85 per cent of the crude price exceeding $60 but less than or equal to $100 a barrel; and 90 per cent of the crude price increase above $100 a barrel.

This would mean that ONGC and OIL would pay Rs3,746 crore for the third quarter of fiscal 2014-15, during which the average price of India basket of crude was $75.17 per barrel.

They would not pay any subsidy for January, during which the price averaged $45.

Their payout for the remaining two months is uncertain.

The ministry has revised the under-recoveries for fiscal 2014-15 at Rs77,594 crore, of which upstream oil companies paid Rs31,926 crore and the government paid Rs17,000 crore. It expects the government to pick up the remaining Rs23,590 crore, of which the last year's Budget already provides for Rs5,336 crore.

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