Higher royalties, income tax and dividend from state-owned natural gas producers ONGC and OIL due to a rise in natural gas price will make up for an expected rise in the subsidy given to gas-consuming fertiliser companies for selling urea cheap, petroleum ministry officials said.
But the chemicals and fertilisers ministry said this calculation may not hold good considering the possibility of fertiliser companies getting more gas allocation as per their original supply contract, which is not fully met now.
According to the petroleum ministry, the rise in fertiliser subsidy expected due to the increase in the administered price of natural gas for ONGC and OIL would lead to a higher fertiliser subsidy requirement of Rs 2,720 crore this financial year. (According to chemicals and fertilisers ministry, the amount is roughly Rs 3,000 crore.)
The government received a 10% royalty of Rs 600 crore last year on a price of Rs 3,200 per thousand cubic metre when the total output of natural gas from ONGC and OIL at administered prices stood at 5 crore cubic meters a day or 1,825 cubic meters a year, said a government official, who asked not to be named.
“After the price increase to Rs 6,818 per thousand cubic metre, the royalty receipt is expected to be Rs 1,250 crore. When we add the expected higher income tax from the profits of ONGC and OIL as well as dividends from these companies, the government stands to get Rs 3,530 crore from them this fiscal,” the official said. This is more than the likely increase in fertiliser subsidy, he explained.
The chemicals and fertilisers ministry, however, is not very pleased because every year, it has to haggle with the finance ministry to get the subsidy for making costly fertilisers affordable. Almost invariably, the original allocation of subsidy is insufficient, and the shortfall comes in delayed installments, causing hardship to producers. Now, urea prices are fixed by the government and needs a subsidy to sell them below cost.
As per the chemicals ministry’s initial assessment of the impact of gas price rise, the subsidy element is expected to go up by Rs 3,000 crore. This is based on the fact that fertiliser companies now get only 15 million standard cubic metre a day (mmscmd) although the original contract was for more than 25 mmscmd. If fertiliser companies get full supply as per the contract, the subsidy burden will go up, said another government official, who too declined to be identified. Besides, the marketing margin for Gail would put extra pressure on the subsidy requirement, he explained. As per Wednesday’s cabinet decision, Gail has been allowed to charge Rs 200 per thousand cubic metre.
In February, the government had estimated a fertiliser subsidy of Rs 49,981 crore for this financial year, slightly less than last year’s Rs 52,980 crore.