With average crude prices hovering around $110/barrel, the Centre has estimated under-recoveries for oil marketing companies at R1,68,000 crore for the year 2013-14.
The Centre has made a budgeted estimation on the basis of a time-bound analysis, keeping exchange rate at R55/dollar and crude oil at $110/bbl.
The under recoveries for the current fiscal was estimated to be R1,80,000 crore before the diesel price hike. Post hike, the under-recoveries are at R1,67,000 crore.
Although the finance ministry is trying it’s best to reduce the high subsidy bill on account of fuel and fertiliser, global indicators are creating a bleak scenario for the government.
Analysts feel crude oil prices will continue to hover in the range of $100-$110/bbl during the most part of 2013-14 due to prevailing global conditions where recovery in US markets would be slim and the demand in Eurozone would continue to remain sluggish.
The subsidy sharing burden on upstream oil companies such as ONGC and Oil India has gone up in the current year on factors like high crude oil prices in the international market and a weaker rupee.
For example, ONGC?s subsidy sharing burden shot up 39% in the first half of the current financial year. It paid out R24,676 crore towards sharing of subsidy burden during April-Sep 2012, compared to R17,760 crore in the same period of the previous year.
As a result, the upstream major?s net profit declined to R11,974 crore in April-Sep 2012, from R12,737 crore in the corresponding period of the past year.
During the same period, Oil India?s subsidy burden increased to R4,093 crore from R2,625 crore.
Even after implementation of the market determined pricing, the OMCs have been making price revisions of petrol in a guarded manner, absorbing part of recovery themselves.
The OMCs together absorbed around R10,045 crores under-recoveries on account of petrol since de-regulation. The country’s Central bank has urged the government to cut subsidies and reduce the fiscal deficit.
“At the current juncture, there is no scope for complacency as fiscal slippage is likely during 2012-13 and current account deficit is likely to stay above sustainable level,” the RBI said in its annual report.