Petroleum Ministry has sought Rs.11,451 crore subsidy

With the oil marketing companies set to announce next week their first quarter numbers for the current fiscal, the Finance Ministry has agreed to provide a cash subsidy of Rs.8,000 crore to help make up for a part of the losses incurred by them in selling diesel, kerosene and domestic cooking gas at prices much below cost.

The cash subsidy being provided by the government, however, is less than a third of the losses incurred by the three OMCs — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL) — as the under-recoveries on account of selling the three fuels at below cost prices during the April-June quarter add up to Rs.25,579 crore.

Even as the Petroleum Ministry, on behalf of the OMCs, had sought a subsidy support of Rs.11,451 crore for the first quarter this fiscal, the Finance Ministry, according to government sources, issued a communication sanctioning a total of Rs.8,000 crore. Accordingly, out of the total sum provided, IOC will receive a cash subsidy of Rs.4,261.29 crore, BPCL Rs.1,916.57 crore and HPCL Rs.1,822.14 crore for the three-month period.

Sharing formula

As per the subsidy burden sharing formula in place, the government has to bear one-third of the revenue losses or under recoveries that the OMCs incur on retailing fuel at controlled rates. On their part, the upstream oil and gas companies such as Oil and Natural Gas Corporation (ONGC), Oil India Ltd (OIL) and GAIL India account for a significant portion of the gap by way of discount on crude oil and LPG supplied to the OMCs.

For the April-June quarter, the upstream firms are set to bear the burden of Rs.15,303.84 crore. Of this, ONGC will chip in with Rs.12,621.78 crore, while OIL and GAIL are set to absorb Rs.1,982.06 crore and Rs.700 crore, respectively, to make up for a major share of the fuel losses during the quarter under reference. The balance will have to be absorbed by the three OMCs themselves.

In recent months, the steadily depreciating rupee has led to further widening of losses on fuel sales and the OMCs are now said to be losing Rs.9.29 a litre on diesel, Rs.33.54 a litre on kerosene and Rs.412 on domestic LPG cylinder (14.2-kg). But for the cash subsidy, the three OMCs were faced with the prospect of reporting losses in the first quarter numbers to be release next week.

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