The government is likely to exempt ONGC and Oil India Ltd from payment of fuel subsidy during the rest of the fiscal due to steep decline in global oil rates to around USD 50 per barrel.
Upstream producers Oil and Natural Gas Corp (ONGC) and OIL made good nearly half of the revenue loss or under-recoveries that fuel retailers incurred on selling cooking fuel and diesel until recently at government controlled rates.
This subsidy contribution was by way of discount on crude oil they sold to the downstream firms and it was capped at USD 56 per barrel in 2013.
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But with global oil prices tumbling to its lowest level since April 2009, the continuation of the subsidy-sharing formula would mean that ONGC will not just have to sell crude oil to refiners like Indian Oil Corp (IOC) for free but also pay another USD 6 per barrel from its pocket.
In such a scenario, the government is considering exempting ONGC and OIL from payment of subsidy during reminder of the current fiscal, sources privy to the development said.
Yesterday, Oil Minister Dharmendra Pradhan had stated that the government was reworking the subsidy-sharing formula.
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Sources said subsidy burden on upstream oil companies has increased from Rs 32,000 crore or 30 per cent of the total under-recovery in 2008-09 to Rs 67,021 crore (48 per cent of the total under-recovery) in 2013-14.
In 2013-14, ONGC paid a record Rs 56,384 crore subsidy.
This has significantly constrained the capacity of these companies to increase their exploration efforts in difficult areas, thereby adversely affecting the country’s domestic oil production.