Kerosene subsidy fixed at Rs 12 a litre for FY16

The government has decided to fix the kerosene subsidy that the Union Budget would provide for in the current fiscal at Rs 12 a litre. Any under-recovery above this incurred by the oil retailers would be compensated by the upstream oil companies ONGC, Oil India and Gail (India).

The finance ministry’s decision is a relief to the upstream companies. They will bear much less as fuel-subsidy burden this fiscal, compared to last year. Also, there is now more clarity on the subsidy-sharing formula. The government had earlier told the upstream companies that it would bear the entire subsidy on cooking gas for April-June quarter.

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 companies’ under-recovery on kerosene sales — given the average price of the Indian basket of crude and the level of the rupee that prevailed in the period — was R18.51/litre. With the government’s decision to clearly define the subsidy to be given from the Budget, upstream oil companies’ 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 around R13,000 crore assuming the average crude oil price at $60 per barrel and it could go up to R16,500 crore at $70 per barrel. The Indian basket of crude oil averaged at $61.47 a barrel during April-June 2015.

Oil marketers incurred an under-recovery of R24,799 crore on kerosene sales in FY15.

Confirming that the finance ministry has communicated its decision to bear kerosene subsidy up to R12 a litre to the petroleum ministry, a source explained: “The government has provided for R8,000 crore for kerosene subsidy in FY16 Union Budget. An additional R2,000 crore would be provided in the supplementary demand for grants.” Under-recovery on kerosene stood at R3,800 crore in Q1FY16.

FE had on April 17 reported the government’s decision to bear the entire domestic cooking gas subsidy in FY16. Finance minister Arun Jaitley has provided R22,000 crore towards LPG subsidy in FY16 in the Budget. The total petroleum subsidy budgeted is R30,000 crore, 50.22% less than the revised estimate of R60,270 crore for FY15.