Upstream oil companies will have to shoulder a higher burden of the oil subsidy this year as compared to what they did last year. If the Finance Ministry remains adamant at not enhancing its share of the subsidy and also insists of fat dividends, it could spell doom for the likes of ONGC and OIL.
The economy is in doldrums. Macro factors are so disturbed, that bringing them to normal levels is the first priority of the government today. Obviously, the Government is working hard at it. it is looking to contain the fiscal deficit at 4.8% of the GDP during current fiscal, a target it set for itself long back. It is doing everything to shore up revenues on one hand and trying to save very penny it can.
In its quest in doing so, the government has set its focus on the ever increasing oil subsidy. If the Petroleum Secretary is to be believed, the government is in no mood to share any extra burden of the oil subsidy and whatever it bears, will be within the budgeted figure. Any additional burden will be passed on to the consumers or upstream companies.
For the current fiscal the government has budgeted Rs 65000 crore for providing oil subsidy. But the way things are shaping up, the total under recovery would be around Rs 1.40 lakh crore. “This year’s under recovery is slated to remain at Rs 1.40 lakh crore and we don’t expect it to cross that level. Considering this Rs 65000 crore was already budgeted by the government as its share and how we share the overall burden between the government and upstream companies is yet to be decided,” informed Vivek Rae, secretary petroleum. “Kelkar committee has also suggested something on burden sharing formula and we are working on it,” he has further added.
To put things in perspective, during FY13 the government had budgeted for 1 lakh crore as oil subsidy while Rs 61000 crore was shouldered by upstream companies out of the total Rs 1.61 lakh crore under recovery. This fiscal though Rs 65000 crore has been budgeted, Rs 45000 crore has gone into the settlement of the spillover effect of last year’s under recovery. “the government is now working on the oil subsidy burden of next year (FY15) and considering the present situation it may be budget around Rs 70000 crore but how much of this burden will the government shoulder and how much of it will be pass on to the consumer is yet to be decided,” explained Rae.
Out of the current year’s expected oil subsidy of Rs 1.40 lakh crore, the government will again have to roll over around Rs 45000 - 50000 crore to the next year’s budget as it did in the previous two years. The Finance Ministry is not in mood (and also in a position) to increase the budgeted subsidy. “Out of Rs 1.40 lakh crore, just Rs 20000 crore is available from the current budget and around Rs 70000 - Rs 80000 crore is expected to come from upstream companies. In spite of this, around Rs 40000 crore would have to be rolled over to the next year, explained a finance ministry official. If this would be the case it would be too bad for the upstream companies like ONGC and OIL India.
Last year out of the total subsidy burden of Rs 61000 crore, ONGC shouldered Rs 49000 crore. but this year, if that amount reaches Rs 80000 crore then ONGC’s share of burden would increase phenomenally. The primary reason for this is that, Gail will not be in a position to shoulder any responsibility on the subsidy sharing front. Same is the case with Oil India and reason why these companies are not willing to pay special dividends to the government. A top ONGC official said that though we are anticipating a subsidy of around Rs 52000 crore this year, if Finance Ministry remains adamant to not increase its subsidy share then ONGC may have to shoulder more than Rs 60000 crore in the current fiscal. Till now the Finance Ministry has shown its willingness to bear Rs 60000 crore from upstream companies but considering the profitability that these company will derive from doubling of natural gas price from April 1 2014, it is pushing companies to shoulder more of the burden of subsidy.
