Kerosene: Centre paid Rs 2,600-crore subsidy to oil retailers for first quarter

By: | Published: August 5, 2015 12:42 AM

The central government has paid Rs 2,600 crore subsidy to public sector oil retailers for selling kerosene at state-set prices in the first quarter of FY16, sources said.

crude oil pricesThe central government has paid Rs 2,600 crore subsidy to public sector oil retailers for selling kerosene at state-set prices in the first quarter of FY16, sources said. (Reuters)

The central government has paid Rs 2,600 crore subsidy to public sector oil retailers for selling kerosene at state-set prices in the first quarter of FY16, sources said.

Additionally, state-run upstream companies compensated R1,300 crore in April-June to the oil retailers Indian Oil, Bharat Petroleum and Hindustan Petroleum, the sources said. The total under-recoveries on kerosene was Rs 3,900 crore in Q1 of FY16.

Under a subsidy-sharing formula prepared by the finance ministry for FY16, the government would provide kerosene subsidy at R12 a litre and any under-recovery above this incurred by the oil retailers would be offset by the upstream oil companies, Oil and Natural Gas Corporation, Oil India and Gail.

The finance ministry’s decision is a relief to the upstream companies as they would bear much less as fuel-subsidy burden this fiscal, compared to last year. There is now also more clarity on the subsidy-sharing formula. The government had earlier told the upstream companies that it would bear the entire subsidy on LPG. Irrespective of under-recovery in LPG, the government pays a fixed subsidy of R18 a kg to the petroleum ministry, which implements the direct cash benefit transfer (DBT) scheme for cooking gas. As the under-recovery in LPG is now around R12 per kg, the balance is kept in a buffer fund as a cushion against rise in crude prices. That means even if the under-recovery goes above R18 per kg, the additional amount required for subsidy payments would be met from the buffer fund without impacting government finances.

In the past few years, the fiscally-strained government had increased upstream companies’ subsidy burden, while the sharing formula remained non-transparent. This year, the relatively benign crude, the decontrol of diesel and the DBT-enabled savings in LPG subsidy would help both the government and the upstream oil firms.

In April-June this year, the oil marketing firms’ under-recovery on kerosene sales was Rs 18.51/litre. Upstream oil firms’ share of subsidy burden in Q1FY16 would be R6.51 per litre, or 35% of the total under-recoveries on the fuel. Last year, these firms bore 48% of the total under-recoveries on fuels. For kerosene, the under-recovery is expected to be R15,000-16,000 crore for FY16. The Indian basket of crude oil averaged at $61.47 a barrel during April-June 2015. Oil retailers incurred an under-recovery of R24,799 crore on kerosene sales in FY15. In the FY16 budget, the government provided R8,000 crore for kerosene subsidy. But the government may have to provide additional R2,000 crore to meet the full-year subsidy pay-out of about R10,000 crore, sources said. For LPG, the government has provided for R22,000 crore subsidy for this fiscal.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition