1. DoD wants subsidy roadmap before ONGC disinvestment

DoD wants subsidy roadmap before ONGC disinvestment

The Department of Disinvestment (DoD) wants the government to lay out a roadmap for fuel subsidy sharing before the Rs 14,000 crore stake...

By: | New Delhi | Updated: March 8, 2015 12:52 PM
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The Department of Disinvestment (DoD) wants the government to lay out a roadmap for fuel subsidy sharing before the Rs 14,000 crore stake sale in Oil and Natural Gas Corp (ONGC), a top official said. Reuters

The Department of Disinvestment (DoD) wants the government to lay out a roadmap for fuel subsidy sharing before the Rs 14,000 crore stake sale in Oil and Natural Gas Corp (ONGC), a top official said.

The government had in 2014 planned to sell its 5 per cent stake in the state-run explorer but met with lukewarm response from foreign investors over lack of clarity on subsidy ONGC has to shell out every quarter.

Disinvestment Secretary Aradhana Johri said foreign investors wanted to know the future subsidy sharing roadmap of the government before buying shares in the disinvestment of the oil major.

ONGC and other oil producers have to bear a part of the losses that fuel retailers incur on selling LPG and kerosene at government-controlled rates. There is no formula to decide on their share and it is communicated on an ad-hoc basis every quarter.

“When we went for ONGC roadshows they (investors) wanted clarity on subsidy sharing, not just who is going to bear how much burden, but also the roadmap. We have suggested this to the government, they are working on it,” Johri told PTI.

Government was to sell 5 per cent of its stake in the country’s biggest oil and gas producer ONGC to raise about Rs 14,000 crore in the current fiscal.

However, subdued global oil prices and subsidy sharing mechanism came in way of disinvesting stake in the PSU.

The double impact of tumbling global oil prices and the rising subsidy burden has left the ONGC stock battered. Its share has slipped from Rs 472 in June last year to Rs 319.80 at close.

Upstream oil producers ONGC and Oil India Ltd made good nearly half of the revenue loss or under-recoveries that fuel retailers incurred on selling cooking fuel at government-controlled rates.

This subsidy contribution is by way of discount on crude oil they sold to the downstream firms and it was capped at USD 56 per barrel in 2013.

However, with global oil prices tumbling to multi-year low of around USD 60 per barrel, the continuation of the subsidy-sharing formula for remaining period of this fiscal would mean that ONGC will not be left with much after the subsidy payout.

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 fiscal it has paid Rs 36,300 crore.

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