The government today sanctioned Rs 5,085 crore in oil subsidy for the December quarter, less than one-third of the revenue lost on LPG and kerosene sales.
A total of Rs 15,981 crore in revenue was lost by fuel retailers on selling PDS kerosene and domestic LPG at government-controlled rates in October-December. Of this, the Finance Ministry issued letter providing for less than one-third of this as cash subsidy, official sources said.
Upstream oil producers like ONGC, who traditionally made good up to half of the revenue losses, were expected to pick up the remaining Rs 10,896 crore, but a last minute intervention by the Oil Ministry helped prevent their first quarterly loss in many years.
With international oil prices halving to USD 50 per barrel, providing the subsidy discounts would have meant they got rates way below their cost of production.
In view of this, making good the remaining Rs 10,896 crore was left to be decided in future.
This would mean that upstream firms will not pay any subsidy in October-December and final adjustments will be done in the fourth quarter, they said, adding in the third quarter the retailers will have to bear these losses on their books.
In the first half of current fiscal, fuel retailers IOC, BPCL and HPCL had together lost Rs 51,110 crore in revenue on selling fuel below cost. Most of this was made good by way of Rs 31,926 crore dole from upstream players and Rs 17,000 crore coming from Budget as cash subsidy.
The Oil Ministry, they said, had sought Rs 22,101 crore in subsidy to cover for losses on LPG and kerosene sale in the second half of current fiscal so as to almost exempt ONGC and OIL from any payments.
Sources said the gross realisation of ONGC during the October-December quarter was USD 75-76 per barrel and after accounting for subsidy payout, which are in form of discounts it will give on crude oil sold to IOC, BPCL and HPCL, the net realisation was likely at USD 35-36.
ONGC’s cost of production is around USD 40 per barrel.
Under-recoveries, or revenue retailers’ loss on selling fuel below cost, is projected at Rs 74,773 crore in full 2014-15 fiscal.
Out of this, Rs 51,109.53 crore was in first half, which was met by Rs 17,000 crore in government subsidy and ONGC paying Rs 26,841 crore. OIL paid Rs 4,085 crore and gas utility GAIL paid Rs 1,000 crore.
The Ministry has put the under-recoveries in October-December quarter at Rs 15,981.28 crore and Rs 7,682 crore in the fourth quarter.
Sources said the Ministry had projected that government will earn Rs 75,944 crore from excise duty on petrol and diesel this fiscal and even after paying for Rs 39,101 crore subsidy (Rs 17,000 crore of first half and Rs 22,101 crore in second half), it will be left with Rs 36,843 crore.