The government’s decision to effect monthly hikes in PDS kerosene prices by 25 paise a litre between July 2016 and April 2017 would reduce the PSU oil marketing companies’ under-recoveries on the fuel by R2,100 crore, Nomura said, adding that this would mean R1,190 crore savings on the government’s oil subsidy, given the current formula for sharing of the burden between the government and upstream oil companies, reports fe Bureau in New Delhi.
Icra estimated the reduction in under-recoveries for FY17 as a result of the move at R760 crore and R2,040 crore for next fiscal. As per Icra’s earlier estimates, subsidy on kerosene was expected to be in the range of R9,000-12,500 crore in FY17 assuming crude price in the $40-50 per barrel band.
In recent years, the oil marketing companies’ under-recoveries on the sale of petroleum products have reduced steeply, thanks to decontrol of diesel and the DBT scheme on LPG, besides benign crude prices. Under-recoveries on PDS kerosene, however, remained relatively sticky as its prices continued to be controlled, resulting in a doubling of their share in total under-recoveries between FY14 and FY16.
While upstream firms was to escape the burden of under-recoveries for crude price up to $45 per barrel, post the monthly price hike policy, they may not have to bear any burden for crude price up to $50-52 a barrel, Icra predicted. “With monthly price revisions, the burden on PSU upstream companies is expected to be lower by Rs 700-760 crore in FY17 which may be 2.5% of the combined profits of ONGC and OIL reported in FY16,” it said.