ONGC to pay Rs8,700 crore subsidy as finance ministry gives only Rs5,085 crore

New Delhi: ONGC Corp. Ltd and other state-run explorers may have to pay about Rs.10,900 crore in fuel subsidy after the finance ministry has agreed to provide only Rs.5,085 crore in cash subsidy for the December quarter.

Out of the Rs.15,981 crore of revenue losses fuel retailers incurred on selling LPG and kerosene at government-controlled rates in October-December, the finance ministry has agreed to make good only less than one-third or Rs.5,085 crore by way of cash subsidy, sources said.

The remaining Rs.10,896 crore will now have to be borne by ONGC and Oil India Ltd (OIL). ONGC may have to shell out close to 80% of this amount (Rs.8,716 crore). Sources said efforts are being made to impress on finance ministry to give out more as the subsidy payout for ONGC and OIL is unsustainable given that oil prices have halved to $50 per barrel.

The oil ministry, they said, had 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 ONGC and OIL from any payments. This was because ONGC and OIL hardly made any money at prevailing global oil prices of about $50 per barrel.

Sources said the gross-realisation of ONGC during October-December was $75-76 per barrel and after accounting for subsidy payout, which are in form of discounts it will give on crude oil sold to IOC, BPCL and HPCL, the net realisation was likely at $35-36.

ONGC’s cost of production is around $40 per barrel. Under-recoveries, or revenue retailers’ loss 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 had projected 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.