The government?s policy of making upstream oil companies ONGC and Oil India Ltd (OIL) share subsidies to compensate oil marketing companies for their under-recoveries on sale of petrol, diesel and kerosene has once again come in for sharp criticism.
In a letter to the petroleum ministry on July 11, OIL gave vent to its anguish by saying that the present subsidy-sharing mechanism was leading to ?unintended benefits? being passed on to oil marketing companies IOC, BPCL and HPCL ?at the cost of upstream firms?. This, OIL said, was clearly reflected in the 2006-07 results of the oil marketing PSUs when compared with their 2005-06 performance.
?The profit after tax (PAT) of some of the oil marketing firms in 2006-07 has been even higher than their 2003-04 profits before the subsidy-sharing scheme was introduced. The PAT of IOC, BPCL and HPCL during 2006-07 stood at Rs 7,499 crore, Rs 1,805 crore and Rs 1,571 crore, respectively. The 2005-06 figures were Rs 4,915 crore, Rs 130 crore and Rs 405 crore, respectively. In contrast, the PAT for 2003-04 stood at Rs 7,004 crore for IOC, Rs 1,694 crore for BPCL and Rs 1,904 crore for HPCL, respectively,? said OIL in the letter.
The OIL pointed out that the gross price realisation of crude oil it sold during 2006-07 was $64.73 a barrel against $58.45 a barrel in 2005-06. But the net price realised during 2006-07 was lower by $4.58 a barrel at $27.95 against $32.53 a barrel in 2005-06. Apart from an increase in royalty and taxes, the subsidy burden of OIL went up from $9.22 a barrel in 2005-06 to $19.18 a barrel in 2006-07.
?This is not fair and equitable to upstream oil companies and is not received well by prospective investors of the proposed IPO of OIL. Further, we chalked out an ambitious growth move in the 11th Plan period, requiring substantial investments, and the huge subsidy burden will hinder our plans,? said OIL.
The government is overhauling the existing subsidy-sharing mechanism that requires upstream firms to share nearly one-third of the burden of under-realisations of the oil marketing companies.
ONGC has already been hit by this, as reflected in its first-quarter losses. OIL, too, has warned the government of the impact this subsidy-sharing will have on its revenue and future growth.
The burden absorbed by the upstream oil companies in 2006-07 amounted to Rs 20,500 crore against a total under-recoveryburden of Rs 49,500 crore of the oil marketing companies, which was even more than one-third of the total under-recoveries (in excess by almost Rs 4,000 crore), OIL said.