Disagreeing with the subsidy sharing formula proposed by the Finance Ministry, upstream oil companies have called for putting in place a fair and equitable mechanism so that the adverse impact of higher subsidy sharing is borne equally by all companies.
Responding to the formula proposed by the Finance Ministry and forwarded to OIL, ONGC and GAIL India by the Petroleum and Natural Gas Ministry, it has been stated that GAIL's contribution may be worked out in proportion to its contribution in 2010-11 as suggested by the Finance Ministry. “The total figure worked out as above shall be distributed between three upstream companies based on the profit ratio. This mechanism will ensure that while the total contribution of upstream oil PSUs remains the same, as in the scenario suggested by the Finance Ministry, the existing instructions of the government on subsidy sharing among upstream oil PSUs will also continue to be followed,” the note states. During 2010-11, upstream oil PSUs had contributed 36.75 per cent of total under-recoveries of oil marketing companies (OMCs). Contribution by upstream oil PSUs, at 38.75 per cent of the actual under-recoveries during 2011-12, also would be almost equal to the contribution based on the mechanism suggested by the Finance Ministry. “To maintain consistency in determining the contribution of the upstream oil PSUs in subsidy sharing, in the current year also the contribution of upstream oil PSUs may be retained at the same level as in 2010-11,” the note adds.
On the issue of distribution of the total contribution among ONGC, OIL and GAIL also, sources said the prevailing sharing mechanism was not equitable to OIL as it penalised its operational efficiencies by increasing the share of OIL in the subsidy sharing mechanism. The share of OIL has been consistently increasing due to higher growth in its profit after tax (PAT). “Our PAT during the last three years has grown by 61 per cent as compared to 13 per cent for ONGC and 37 per cent for GAIL. Though the absolute increase in the PAT of ONGC is much higher (from Rs.6,702 crore in 2007-08 to Rs.18,924 crore in 2010-11), as compared to OIL (from Rs.1,789 crore in 2007-08 to Rs.2,888 in 2010-11), the percentage growth for ONGC is lower due to large PAT base. As a result, the contribution of OIL has increased from 8.97 per cent in 2007-08 to 12.27 per cent in the first-half of the current year,” it states.
OIL has suggested that the share of the three upstream oil PSUs in the subsidy sharing mechanism may be frozen at the level adopted during 2010-11 and applied to the total contribution by them or alternatively by adopting five years' average PAT instead of three years' now followed.
