The financial burden on the three state-owned oil marketing firms on account of the recent unprecedented spurt in global crude oil prices at current prices, and based on the net sales realisation during the year and at the prevailing retail prices have been estimated at Rs 1,90,958 crore by the BK Chaturvedi committee.

If the government allows the OMCs–Indian Oil, BPCL and HPC—to increase the prices of petrol and diesel monthly, as suggested by the committee ie by Rs 2.50 a litre for petrol and 75 paise for diesel, this financial loss will come down to Rs 123,212 crore. This of course is along with other measures proposed including the reduction in diversion of kerosene and of entitlement of subsidised LPG to BPL families only.

Now, there is already an existing provision of Rs 2,700 crore in the Union Budget for meeting the

subsidy on public distribution system kerosene and domestic LPG.

Taking this into account, the financial shortfall further reduces to Rs 1,20,512 crore.

The effective rate of special oil tax (SOT), proposed to be levied on public and private sector domestic producers of crude oil, will be 40% of the revenue in excess of $75 a barrel for private producers while for public sector oil produce–s-ONGC and OIL, it will be 100% after the $75 a barrel level.

The special oil tax has been estimated by the committee on the basis of expected oil production in 2008-09. These expected production volumes are 32.66 million tonne for ONGC and OIL and 6.26 million tonne for pre-NELP private and joint venture operations.

On these volumes and the SOT rate, the likely collection is estimated to be Rs 59,890 cr–re-comprising of Rs 55,627 crore from ONGC and OIL and Rs 4,264 crore from the other crude oil producers. In addition, a contribution of Rs 500 crore is assessed for GAIL on account of the LPG that it produces from the natural gas that is made available to it at the controlled price.

?This leaves an uncovered net shortfall of Rs 60,122 crore to be met out of the issue of special oil bonds by the government,? the committee’s report said.

Addressing the issue of the treatment of the residual financial support being met by way of oil bonds, which the OMCs encash after consultations on an agreed timeframe, the committee has noted that these oil bonds are presently treated as below the line in the accounts of the government.

Responding to the criticism of inter-generational inequity in the passing on of the financial shortcomings of our generation to the future ones, who will have to find the resources to pay down these bonds, the committee has asked the government to make use of the profit petroleum accruing to it under the NELP scheme.

?Under the NELP scheme, the government stands to gain from the so-called profit or revenue petroleum and natural gas which will typically accrue to the government towards the second half of the productive life of the oil or gas field,? it said.

The development of these oil fields thus creates a future stream of receivables for the government.

These streams must be earmarked for paying down the oil bonds that have already been issued to date and any future issuance of oil bonds.

?In that sense, the oil bonds thus represent the net present value (NPV) of the future profit oil and gas that would accrue to the government. Since the oil bonds have and will continue to be issued, thereby creating liability, the counterpart asset needs to be identified and secured,?Otherwise the profit or revenue oil and gas stream may be used for some other purpose and the pay out of the oil bonds will have to be met out of general tax revenues,? said the committee’s report.