The public sector upstream companies ONGC and Oil India Ltd are crying foul. They want the Government to lower the subsidy burden on them so that the additional cess outgo is offset.

From April 1, the Government proposes to almost double the cess on domestically produced crude oil. Sources say this (additional cess) coupled with the subsidy burden – discount which the upstream companies offer to oil marketing companies on sale of petroleum products and crude oil – will further dent their revenues.

Realisations

The additional cess and higher subsidy burden will also create hurdles in increasing domestic output, which is one of the main focus areas of the Government, sources said. The companies have been compelled to re-evaluate their investment plans, as it is bringing down their per barrel realisation on crude oil.

The cess outgo for ONGC and Oil India will increase by almost Rs 5,500 crore (Oil India Rs 800 crore and ONGC Rs 4,700 crore).

Subsidy-sharing formula

In 2003-04, the subsidy sharing mechanism put in place by the Petroleum Ministry prescribed for one-third of the under-recoveries of OMCs to be borne by the upstream companies. At its peak in 2006-07, the upstream contribution rose to 41.5 per cent, and in 2010-11 it was 38.75 per cent.

The Finance Ministry now proposes to cap the subsidy sharing at $56 a barrel. Based on this proposal, the oil companies have suggested that total contribution by ONGC and OIL may be worked out at $56 a barrel, based on their total crude oil output of about 176 million barrels (ONGC 149 million barrels and OIL 27 million barrels).

GAIL (India)'s contribution may be worked out in proportion to its contribution in 2010-11. The figures worked out shall be distributed among the three companies based on the profit ratio.

>richam@thehindu.co.in

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