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Govt mulls restarting subsidy sharing with ONGC to pare down retail fuel prices: Report

The ministry plans to direct ONGC to sell its crude oil at below ruling international prices by capping the price at, say, $70 for the entire fiscal year. Oil India Ltd, the country's second largest hydrocarbon exploration and production PSU, will not be a part of this scheme.


twitter-logo BusinessToday.In   New Delhi     Last Updated: May 24, 2018  | 14:40 IST
Govt mulls restarting subsidy sharing with ONGC to pare down retail fuel prices: Report

Even though fuel prices have continued to scale new peaks for 11th day in a row today, and despite media reports hinting at an imminent cut in the excise duty levied on petrol and diesel, the finance ministry remains reluctant to bite that bullet. In the face of the rising flak faced from the public and the opposition alike, the petroleum ministry has now reportedly stepped in to bat. Or rather it plans to pass on the burden on to Oil & Natural Gas Corporation (ONGC), one of most profitable public sector units.

"The ministry plans to direct ONGC to sell its crude oil at below ruling international prices by capping the price at, say, $70 for the entire fiscal year. Oil India Ltd [the country's second largest hydrocarbon exploration and production PSU] will not be a part of this scheme," a government official told The Indian Express, adding that the exact price cap hasn't been determined as ONGC has sought a higher price to fund its capital expenditures for the next two years. ONGC has signed the Crude Oil Sales Agreement with several oil refining-cum-marketing companies like BPCL, HPCL and IOCL, among others, and supplies an estimated 20 per cent of the country's total crude oil requirement to them.

Incidentally, earlier this week Moody's had predicted such a move. "The net impact of the subsidy sharing will be manageable for ONGC and OIL, even if the two companies are required to bear the entire shortfall between budgeted and actual amounts for the fiscal year ending March 2019," said Moody's senior vice-president Vikas Halan. It also estimated that fuel subsidies could total Rs 34,000 crore to Rs 53,000 crore in the current fiscal - the highest since 2015 - assuming benchmark Brent crude oil prices average $60-80 per barrel.

This is not the first time that the PSU will be asked to take a hit. ONGC and OIL had paid as much as 40 per cent of the under-recoveries arising from fuel retailers selling petrol, diesel, LPG and kerosene at a government-mandated price that was way lower than actual cost. And they bore the burden for more than 13 years till the subsidy sharing ended in June 2015, after global oil prices started plummeting.

This time round, the report said that ONGC's contribution could pare the required price increase in petrol and diesel by one-third with an additional marginal relief provided by reducing the dealers' commission by 18 paise per litre on diesel and 23 paise per litre on petrol. To remind you, courtesy the 19-day pre-Karnataka poll hiatus in fuel price hikes, current domestic retail prices are yet to be aligned with the international fuel price, which reportedly jumped by nearly $5 a barrel.

The source added that this idea has been "accepted in principle" but the mechanism of the burden sharing and the final numbers are yet to be worked out. If things go to plan, ONGC would provide close to Rs 30,000 crore for this exercise, which is equivalent to a cut in excise duty on fuel by Rs 2 per litre. But even after the discount, ONGC's net realised price on crude oil would reportedly be higher than the $56 it earned per barrel in the last fiscal.

This development seems to be part of the long-term solution that Law and IT Minister Ravi Shankar Prasad mentioned on Wednesday. "The government is keen that instead of having ad hoc measures, it may be desirable to have a long-term view that addresses not only the volatility but also takes care of the unnecessary ambiguity arising out of frequent ups and downs," the minister told the media after a Cabinet meeting headed by Prime Minister Narendra Modi.

On queries about cutting the excise duty, Prasad had said the proceeds from such taxes were used for building highways, digital infrastructure, supplying electricity to villages, for hospitals and education. Every Re 1 reduction in taxes per litre of fuel causes a Rs 13,000 crore annual loss to the exchequer. "So tax on fuel is linked with developmental issues. We understand that there is a compelling need for a long-term solution, structured solution," he had added. Currently, the excise duty on petrol stands at Rs 19.48 per litre and Rs 15.33 per litre on diesel.

Since October 4, 2017, when the Modi government announced a Rs 2 per litre cut in the central excise duty on fuel, petrol prices in the metros have gone up by 10-13 per cent, depending on the city, while diesel prices have spiked by 17-20 per cent.

With PTI inputs

 

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