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Reprieve for oil and gas majors?

ONGC, OIL and GAIL will no longer have to share the deficit burden of the three state-owned oil marketing firms - Indian Oil, Hindustan Petroleum and Bharat Petroleum on sale of fuels in the domestic market. Anupama Airy reports.

business Updated: Jan 01, 2009 21:40 IST
Anupama Airy

The government's policy on robbing Peter to pay Paul will shortly come to an end. Cash-rich upstream oil companies — ONGC, OIL and GAIL — will no longer have to share the deficit burden or what is popularly called as the “under-recoveries” of the three state-owned oil marketing firms—Indian Oil, Hindustan Petroleum and Bharat Petroleum on sale of fuels in the domestic market.

The ministries of petroleum and finance are giving finishing touches to a new oil subsidy-sharing plan. To be announced shortly, the new plan has been worked out keeping in mind the sharp fluctuations in crude oil prices from the $148 a barrel levels in June this year to around $40 at present.

"Volatile crude oil prices have put the profit margins of ONGC and OIL under pressure. Besides, as the OMCs have also started making profits on domestic sales of petrol and diesel, there is no need for any subsidy sharing by ONGC, GAIL and OIL, said a senior petroleum ministry official.

Under the present subsidy sharing mechanism, the three state-owned upstream firms (ONGC, OIL and GAIL) had to share one-third of the revenue losses of the OMCs by offering discounts on domestic crude oil sales and government shared a larger part of the remaining losses by issuing oil bonds to the oil marketing firms.

Asked to comment the chairman and managing director, ONGC, RS Sharma said, “The sharp fall in crude oil prices is detrimental on ONGC's interest. We are not comfortable with the current prices and I think it is time for some reverse subsidy sharing.”

Upstream firms have till date paid close to Rs 31,000 crore to the OMCs against Rs 45,000 crore which they were asked to pay by the government when oil prices touched $148 a barrel in June. A senior petroleum ministry official confirmed that no more payment is required to be made by ONGC, OIL or GAIL.