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Subsidy burden for oil companies fixed at $56 per barrel

As the petroleum retailing companies - IOC, BPCL and HPCL - still wait for the compensation for the subsidy they provide of diesel, cooking gas (LPG) and kerosene, petroleum ministry today clarified the mechanism of subsidy burden sharing by upstream PSUs ONGC and OIL.

Petroleum Ministry clarified that now it is not the percentage of total subsidy that the upstream PSUs will share but it has been frozen at $56/barrel.

Petroleum Minister Jaipal Reddy said that, "their (ONGC, OIL and GAIL) contribution (to subsidy sharing) will be capped at $56 per barrel". 

Oil & Gas exploration and production PSUs ONGC, OIL along with GAIL use to share a part of subsidy burden that IOC, BPCL and HPCL lose on selling diesel, LPG and kerosene at government controlled rates. Earlier the subsidy burden on ONGC, OIL and GAIL used to be 33% of the subsidy but last year it was raised to 39%.

Last fiscal upstream PSUs compensated Rs.55,000 crore to IOC, BPCL and HPCL out of the tatal losses (under recovery) of Rs 138,541 cr. Similarly in 2010-11 and 2009-10 upstream PSUs paid Rs 30,297 crore and Rs 14,430 crore respectively to oil retailer PSUs.

Asked if the $56/barrel limit was not too high for ONGC in case oil falls below $100/barrel Petroleum Secretary G C Chaturvedi said that he will approach the finance ministry for suitably lowering the cap. Chaturvedi added that his ministry has sought cash subsidy of Rs 89,750 crore for first half of this fiscal but the Finance Ministry is yet to come up with any response.

Though the finance ministry is yet to compensate oil firms for the subsidy they provide but the upstream firms have compensated Rs.15,061 crore out of the Rs 47,811 crore loss of the oil retailers in the first quarter. Petroleum Secretary, G C Chaturvedi said for the second quarter, upstream contribution would be in the range of Rs 14,000-15,000 crore.

Meanwhile, Petroleum Minister said that after the strengthening of Indian Rupee against US Dollar the under recover of the oil retailers will come down marginally to Rs.167,415 cr, but still it will be substantially higher than the fiscal.