Count Down To Budget - Oil ministry moves new subsidy plan Will Benefit ONGC Stake Sale | Additional Govt Support Limited To Rs 18K Cr The government may exempt upstream oil companies from sharing the subsidy burden as long as international crude price stays below the $60-a-barrel mark as it rushes to divest stake in ONGC during the current fiscal. The subsidy-sharing formula, which is holding up the stake sale, is expected to be cleared over the next few days even as the disinvestment department has said that the proposed selloff may be tough during the current financial year, sources told TOI. The fall in global crude prices and the deregulation of diesel prices have completely changed the oil arithmetic and made the earlier subsidysharing formula redundant. The government is estimating under-recoveries of around Rs 78,000 crore for the oil retailers during the current financial year, of which Rs 51,000 crore relates to the first half, leaving the estimated unpaid bill for the whole year at around Rs 26,500 crore.In 2013-14, the oil subsidy bill was around Rs 1.3 lakh crore. The petroleum ministry has asked for reworking of the subsidy-sharing mechanism as the current formula for upstream players such as ONGC and Oil India, which shell out $73 a barrel as subsidies, cess and tax es, is unviable when the cost of crude is less than $50 a barrel. As a result, the ministry has suggested that the earlier formula be retained for the first half but starting October, the upstream players should be exempted from any burden as long as crude costs $60 a barrel or less. Between $60 and $100 a barrel, these companies can take over 85% of the under-recoveries and 90% in case price exceeds $100. Based on the assumption that crude will cost around $76 a barrel during the second half of the year, and the rupee will be around 62 a dollar, the upstream players and GAIL (India) will have to shell out Rs 37,000 crore, while the Budget will have to provide around Rs 40,500 crore for oil subsidy . With Rs 22,000 crore already available with the govern ment after taking care of last fiscals liability, finance min ister Arun Jaitley may have to set aside a little over Rs 18,000 crore in the supplementary demand for grants that he presents along with the Budget on February 28. Alternatively , he can carry forward the liability to the next financial year -as has become a norm of sorts for the past few years. What may come as a further relief for Jaitley is Saudi Arabias expectation in its Budget that oil prices will hover around $80 a barrel in 201516, which translates into an allocation of under Rs 40,000 crore for the next fiscal. A lower subsidy bill will be a major positive for the government, which is seeking to limit the fiscal deficit within 4.1% of GDP this year, while looking for resources to step up public investment during the next financial year.
Posted on: Thu, 22 Jan 2015 11:21:55 +0000
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