We want clarity on subsidy-sharing mechanism

Jan 25 2013, 01:29 IST
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SummaryOil India, one of country's two public sector oil exploration firms, plans to complete two foreign acquisitions by December and has given non-binding offers in 3-4 cases.

Oil India, one of country's two public sector oil exploration firms, plans to complete two foreign acquisitions by December and has given non-binding offers in 3-4 cases. Ahead of the planned disinvestment stake this fiscal, the company has asked the Centre for a net realisation of $65/bbl by clarifying on the subsidy-sharing mechanism. In an interview with FE's Prashant Mukherjee & Sunny Verma, Oil India director (finance) TK Ananth Kumar said the upstream company does not expect any growth in oil and gas production this year.

Excerpts

While the government is trying ways of reducing under-recoveries and lowering the subsidy burden, there is still no clarity on the sharing of upstream companies. Can you throw some light on this?

Last year, the subsidy burden was revised with a “net realisation” of $56/bbl for us, as against the percentage basis that was practised earlier. This year also provisionally the government has told us to stick to the $56/bbl norm. We don't mind parting with some of our (potential) gains to reduce the government's share of the subsidy burden, arising from the need to compensate for the under-recoveries of oil marketing companies. But we and our investors want clarity in the subsidy-sharing mechanism. The mechanism should be more predictable so that investors know what kind of price realisation the upstream companies can get. We have taken up with the ministry of petroleum and finance that we should be allowed to retain $65/bbl net realisation, as against $56 now.

How much subsidy burden does OIL expect this year?

The recent revisions in prices will give very marginal reduction in under-recoveries for the oil industry. We don't expect in this current financial year anything significant to happen for upstream companies. We expect (realisation of) $56/bbl to continue during the third and perhaps the fourth quarter also. Going by the same trend, we expect the current year subsidy burden to be around R8,000 crore.

What are your capex plans?

The high subsidy burden is hitting our capex plans. However, our capex plans have increased over the years because we have grown and taken many exploration blocks. We are required to spend money on these blocks from medium to long-term. We have kept our annual capex plans of average R3,500 crore and according to the 12th plan our investment would be R19,000 crore. So to have this kind of investment we need to generate at least $25/bbl after

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