In a big boost to domestic oil and gas exploration, the government has decided to exempt state-owned ONGC and Oil India from paying for LPG subsidies, Oil Secretary Saurabh Chandra said today. "Government will fully meet subsidy burden of LPG in 2015-16," he said in a FICCI roundtable on Hydrocarbons. "Since upstream national oil company’s contribution to under-recoveries is reduced, to that extent their resources are freed to invest in exploration and production," he said. Subsidy rationalization allows upstream companies to invest more in exploration and production, said Chandra.
The Finance Ministry will pay Rs 5,324 crore in fuel subsidy for the period January-March quarter, effectively meeting all revenue retailers’ losses on selling domestic LPG and kerosene at the government-controlled rates. Under-recoveries or revenue retailers' loss on selling fuel below cost, of Rs 67,091 crore in first nine months of the fiscal were fully accounted for by the subsidy support and will be doled out from upstream firms like ONGC. The under-recoveries of Rs 5,324 crore for the March quarter is being entirely borne by the government.
The Oil Secretary said since the government is paying LPG subsidy directly to consumers in their bank accounts under the Direct Benefit Transfer scheme, it has been decided that this will be entirely met from the Budget. Besides the fall in international crude prices, a stable rupee and continued monthly price hikes for petrol and diesel could help contain the subsidy bill.
Based on average crude oil price of $60/barrel, LPG subsidy for 2015-16 may be about Rs 18,000 crore and assuming crude oil rate at USD 70/barrel, it could be in the vicinity of Rs 25,000 crore. For Kerosene, it will be Rs 13,000 crore at USD 60/barrel and Rs 16,500 crore at USD 70 per barrel oil price.
ONGC’s Chairman and Managing Director D K Sarraf welcomed the move saying the company will get better realisation. “We are very aggressive on our investments and will continue to be so,” said Sarraf.
Oil India shares were down 2.15 per cent at Rs. 489.70, ONGC was up 0.93 per cent at Rs. 324.80 and GAIL (India) was trading down 1.27 per cent or Rs. 4.90 at Rs. 380.25 on the NSE at 2.15 pm.
By Premji
