Rising global crude oil prices over the last four years have inflated India?s subsidy bill, but the burden on the exchequer could have been higher hadn’t the fiscally-conscious government reduced its share of the onus, at the cost of upstream oil companies.

According to official data, between 2008-09 and 2011-12, the Centre reduced its direct funding of oil marketing companies? losses ? from 69.02% of the total estimated under-recoveries to 46.24%. Consequently, upstream firms such as ONGC, OIL and GAIL funded 38% of the under-recoveries in 2011-12, as against 30.98% in 2008-09.

The increase in the outgo through discounted pricing to oil companies has jeopardised the modernisation and expansion programmes of upstream majors, especially at a time when the country needs to bolster its energy security.

Upstream oil companies are seeking a transparent and predictable mechanism for sharing of petroleum subsidy burden, rather than ad hoc handling of the situation.

These companies are keen to acquire assets abroad and sustain their capital expenditure plans.

?The government should have a transparent mechanism. We have asked them to allow us to retain a net realisation of $65 a barrel, which will help us towards our capital expenditure plans.

Moreover, it has put a burden of cess this year of around $5,? Ananth Kumar, director finance, Oil India Limited said.

The government in its recent budget increased the cess on crude oil production from R2,500 a tonne ($6.8/barrel) to R4,500 a tonne ($12.3/barrel), which has put additional burden on the oil companies.

In 2003-04, the government put in place a subsidy sharing formula that prescribed for one-third of the under-recoveries of oil firms to be borne by the upstream companies.

But there were instances when the government forced the upstream companies to bear more.

During 2006-07, the contribution of upstream oil companies rose to around 41.5% and also in the year 2010-11 it was increased to 38.75%.

In last one decade, the upstream firms have paid more than R2 lakh crore as subsidy to oil marketing companies since the government asked the state energy explorers to share the burden of growing under-recoveries.

?The massive increase in the subsidy bill has also stripped upstream PSU producers such as ONGC and OIL of funds that could have been productively used to explore and produce more crude oil and alleviate the country’s enormous dependence on imports,? the Prime Minister’s Economic Advisory Council said in its economic outlook 2012-13.

The government is now considering various options to bring down the subsidy burden on the upstream oil firms and work out a proper subsidy sharing mechanism.