Moody’s Investors Service has assessed that as oil prices rise, Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) are facing an increasing risk that the Government will once again require them to share in the country's fuel-subsidy burden.

Vikas Halan, a Moody's Senior Vice-President said, “Because of the government's widening fiscal deficit, ONGC and OIL could be asked to bear part of the government's fuel subsidy for oil, if prices stay above $60 per barrel for the fiscal year ending March 2019.”

Moody's notes that if ONGC and OIL are obligated to contribute the entire subsidized amount exceeding the government's budgeted figure for the fiscal year ending March 2019, such a requirement would constrain their net realised prices to $52-$56 per barrel, which is only marginally lower than or equal to the $56 for financial year 2017-2018.

Moody's estimates that fuel subsidies could total ₹ 340 to ₹ 530 billion in financial year 2018-2019, the highest since financial year 2014-2015, assuming Brent crude oil prices average between $60-$80 per barrel.

The government has budgeted for ₹250 billion of fuel subsidies in the current financial year, leaving a shortfall of ₹90-280 billion, which could be met by ONGC and OIL entirely, or in part, if the government increases the budget allocation for these subsidies.

 

comment COMMENT NOW