Steep hike in ONGC’s subsidy burden likely

Unwilling to raise the prices of oil-based fuels apart from petrol but desperate to balance its books, the union government could be preparing to almost double the subsidy burden borne by state-owned Oil & Natural Gas Corp, according to reports.

Shares of ONGC slumped after a Bloomberg report to this effect, quoting two unnamed people ''with direct knowledge of the matter''.

The report said the nation's biggest oil producer and explorer may pay about Rs47,000 crore as the state-mandated subsidy burden this financial year. ONGC paid Rs24,890 crore as subsidy in the year ended 31 March.

Another report suggested that the finance ministry wants oil and gas producers ONGC, Oil India Ltd, and GAIL Ltd (the gas distributor) to meet a third of the Rs1,70,140 crore revenue loss from selling fuel at subsidised prices. This figure was projected prior to the price hike in June (when petrol prices were largely aligned to international crude prices).  

The figure is well above the Rs1,14,084 crore actual losses oil retailers are estimated to suffer this fiscal by selling fuel below cost.

Upstream oil companies currently bear a third of the burden of revenue losses suffered by retailers from selling diesel, LPG (cooking gas) and kerosene at controlled rates. A more-or-less equal amount is contributed by the government by way of cash subsidies, while the rest is absorbed by the retailers.