Kirit Parikh panel’s oil subsidy formula rejected

The petroleum and natural gas ministry has rejected the crude oil-matrix based subsidy sharing formula for Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL), as suggested by the expert committee headed by Kirit Parikh.

The ministry, however, wants to keep the share of these companies, along with gas distributor GAIL India, at a third of total under-recoveries, reports Business Standard.

The gross under-recoveries incurred by oil marketing companies (OMCs) on selling auto and cooking fuels below the market price is expected to be around Rs53,100 crore at a crude oil price level of $75 a barrel. Of this, the total burden on ONGC, GAIL and OIL would come to around Rs17,700 crore this year, according to the one-third sharing mechanism. "The upstream companies had been contributing for a third of the under-recoveries. It is the maximum that they will be made to bear this year also, depending on their financial performance," petroleum secretary S Sundareshan the newspaper.

A group of ministers had on 25 June partially accepted the Kirit Parikh committee report on petroleum pricing, when it decontrolled petrol prices and said diesel prices too would be decontrolled eventually. It left the issue of upstream sharing open. Sundareshan said discussions on the mechanism for burden-sharing would be worked out after discussions with the finance ministry.

Since 2006, the government has been asking upstream oil and gas producing companies to share the subsidy burden of OMCs on the ground that these companies get a higher return on their production when international prices move up.

ONGC's margin on sale of crude oil is roughly $20 a barrel more than its cost of production since 2005-06, even after subsidy sharing in the form of discounts to refineries.