Petroleum ministry seeks prompt release of Rs10,000 crore subsidy

In the wake of rising crude oil prices in the international market and Oil and Natural Gas Ltd’s (ONGC) upcoming follow-on public offer (FPO), the Ministry of Petroleum is pressuring the government to immediately release Rs10,000 crore subsidy for the oil marketing companies (OMCs) that are likely to report a loss in their third quarter results in the absence of subsidy sharing by the government.

“Our ministry has requested the finance ministry to release Rs10,000 crore for the oil marketing companies”, said petroleum minister Murli Deora on Wednesday.

The three government-run oil marketing companies are losing about Rs290 crore a day in revenues on selling diesel, LPG and kerosene and petrol below cost.

Besides petrol and diesel, they are losing Rs19.60 per litre on kerosene and Rs366.28 per cylinder.

The finance ministry has, so far, sanctioned Rs13,000 crore as subsidy for the OMC’s for the first half of the year.

The combined under recoveries for the OMCs are expected to be around Rs73,000 crore for the current fiscal at the current price of crude oil.

The oil PSUs will declare their quarterly results this month, and if the government sanctions more money as subsidy for the companies, it will help firms report better results.

The finance ministry has said that it will not bear more than 33% of the subsidy burden for the OMCs this year. However, the petroleum ministry has been asking the finance minister to increase the threshold for subsidy sharing, as the companies are not in a position to incur losses due to rising crude prices.

On June 25, the government had deregulated the price setting mechanism for petrol, after which, the OMCs have increased prices of oil six times. However, even after the deregulation of petrol prices, the OMCs are not able to charge the required amount on petrol due to pressure from the government.

The government also has been delaying a price hike in diesel prices, as the food inflation is in double digits for the past many weeks and any hike in the diesel prices will fuel the food inflation
further.

The petroleum ministry has also asked the finance ministry to cut import and excise duty on crude oil and its products in the country to help companies safeguard there revenues. The move will further impact the revenue of the government.