New Delhi: Oil Ministry has sought Rs 22,101 crore in subsidy to cover for losses on LPG and kerosene sale in the second half of current fiscal so as to almost exempt oil producer ONGC and Oil India Ltd from any payments.
The government has this fiscal so far provided Rs 17,000 crore or one-third of the losses that fuel retailers incurred during April-September. Oil and Natural Gas Corp (ONGC) and OIL chipped in Rs 31,926 crore.
But with global oil prices slipping below economical price of USD 50 per barrel, the ministry wants to exempt the upstream producers from payment of any further subsidy during the remainder of current fiscal, official sources said.
The ministry has written to the finance ministry seeking Rs 22,101 crore for covering most of the revenue loss on LPG and kerosene sale during October-December. Diesel was deregulated in mid-October and as such there is no subsidy on it in the second half.
Under-recoveries or revenue retailers lose on selling fuel below cost, is projected at Rs 74,773 crore in full 2014-15 fiscal. Out of this, Rs 51,109.53 crore was in first half, which was met by Rs 17,000 crore in government subsidy and ONGC paying Rs 26,841 crore. OIL paid Rs 4,085 crore and gas utility GAIL paid Rs 1,000 crore.
The ministry has put the under-recoveries in October-December quarter at Rs 15,981.28 crore and Rs 7,682 crore in the fourth quarter.
Sources said the ministry projects that the government will earn Rs 75,944 crore from excise duty on petrol and diesel this fiscal and even after paying for Rs 39,101 crore subsidy (Rs 17,000 crore of first half and Rs 22,101 crore in second half), it will be left with Rs 36,843 crore.
Upstream producers ONGC and OIL made good nearly half of the revenue loss or under-recoveries that fuel retailers incurred on selling cooking fuel and diesel until recently at government controlled rates.
This subsidy contribution was by way of discount on crude oil they sold to the downstream firms and it was capped at USD 56 per barrel in 2012.
But with global oil prices tumbling to lowest level since April 2009, the continuation of the subsidy-sharing formula would mean that ONGC will not just have to sell crude oil to refiners like Indian Oil Corp (IOC) for free but also pay another USD 6 per barrel from its pocket.
In such a scenario, the ministry wants to exempt ONGC and OIL from payment of subsidy during reminder of the current fiscal, they said.
Sources said subsidy burden on upstream oil companies has increased from Rs 32,000 crore or 30 percent of the total under-recovery in 2008-09 to Rs 67,021 crore (48 percent of the total under-recovery) in 2013-14.
In 2013-14, ONGC paid a record Rs 56,384 crore subsidy.
This has significantly constrained the capacity of these companies to increase their exploration efforts in difficult areas, thereby adversely affecting the country's domestic oil production.
Sources said the oil ministry is of the view that unless sufficient funds are available for increased oil recovery and enhanced oil recovery schemes from the ageing oil fields, the country may notionally lose more than 70 million tonnes of indigenous crude oil production during next 10 years.
This may increase the import bill by Rs 3,33,000 crore. However, if this crude is produced indigenously, it will cost only Rs 112,000 crore resulting in a substantial saving of Rs 2,21,000 crore.
