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ONGC's subsidy burden hiked

Special Correspondent
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A. K. Hazarika
A. K. Hazarika

In a move that is likely to badly impact the bottom line of the company, the Central Government has hiked the fuel subsidy outgo burden of state-owned Oil and Natural Gas Corporation (ONGC) from one-third to 38.8 per cent for 2010-11 fiscal.

The move is likely to impact the follow-on public offer (FPO) of the company that is expected to take place in the first week of July. Of the around Rs.78,000 crore revenue that retailers lost on selling diesel, LPG and kerosene at government-controlled rates in 2010-11, upstream companies ONGC, Oil India Limited (OIL) and GAIL (India) have been ordered to contribute Rs.30,296.75 crore (38.8 per cent).

Traditionally, upstream companies made up roughly one-third (33.33 per cent) of the revenues lost on fuel sales through discounts on crude oil and products they sold to Indian Oil Corporation, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited (BPCL). “We have been told that our subsidy contribution for 2010-11 fiscal will be 38.8 per cent instead of one-third subsidy we had been sharing for the past four years,” ONGC Chairman and Managing Director A. K. Hazarika told reporters here. ONGC has been asked to contribute Rs.24,892.43 crore, OIL Rs.3,293.08 crore and GAIL Rs.2,111.24 crore.

“We are giving Rs.3,832 crore more in subsidy that we had projected earlier. ONGC got $55.94 for crude oil it sold in 2009-10 and after the increased subsidy its net realisation in 2010-11 would be $52-53 a barrel. Our profits will be adversely impacted by Rs.2,000 crore due to this additional subsidy outgo,” Mr. Hazarika said.

Mr. Hazarika said the timing of the FPO was for the Department of Disinvestment to decide. “We were told that the FPO would happen in the first week of July and accordingly we are prepared”. ONGC has been critical of the ad-hoc subsidy mechanism and has demanded that the government should come out with a transparent policy in the larger public and shareholder interest. The government was targeting Rs.14,000 crore from the FPO but at current rates it will get just over Rs.11,000 crore.

Mr. Hazarika said the company's profitability would be more than Rs.16,700 crore net profit earned in 2009-10 fiscal. “We made Rs.16,100 crore of net profit in the first nine months and for the full fiscal we will do better than last year,” he said.

In the 2010-11 fiscal, the three firms lost Rs.78,202 crore but the government provided only Rs.40,912 crore in compensation.


  • Move likely to impact the

    follow-on offer

  • Net realisation

    will come down

    to $52-53 a barrel



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