The oil and gas industry awaits strong subsidy reduction measures amidst indications that the Government is seriously considering various options in this regard.

Abhinav Goel, senior director at India Ratings, said gross under-recoveries (GUR) on the three regulated fuels — diesel, domestic LPG and kerosene — at the public distribution system have been rising alarmingly and are likely to touch record levels of over Rs 160,000 crore in FY13.

“Though the diesel and petrol price hikes, duty rationalisation and LPG cylinder cap in 2012 provided some relief to the national oil companies, policy clarity on larger issues such as product pricing and subsidy sharing is required as a long-term direction for the industry,” added Goel.

However, despite issues such as high GUR of public sector companies (PSCs) and the continuing uncertain global macro economic environment, the 2013 outlook on both public and private sector oil and gas companies is stable, according to an India Ratings report.

The report links the ratings of oil and gas PSCs with that of the sovereign because of the strategic importance of the sector and the evidence of tangible financial support, and it does not expect any weakening of these ties.

Moreover, the Centre has signalled major reforms in the subsidy transfer mechanism wherein it has planned to move to cash transfer (or direct benefit transfer) of subsidy to the target population under various schemes, including kerosene and LPG subsidies.

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