Oil marketing firms may get Rs 15,000-cr compensation for Q4 of last fiscal

The public sector oil marketing companies are expected to get Rs 15,000 crore as part of the compensation for selling petroleum products below the market price during the fourth quarter of 2011-12.

Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are compensated for selling diesel, domestic LPG, and kerosene at a Government-controlled price based on a subsidy sharing formula.

Indications are that the Government is unlikely to bring any major change in the subsidy sharing formula, where the burden is shared by the public sector upstream companies like ONGC, Oil India, Government, oil marketing companies, and consumers through minimal price increase.

A senior Government official told

Business Line , “The oil marketing companies are likely to get additional amount for fourth quarter of 2011-12 from the budgetary provision of Rs 43,580 crore for 2012-13.” It is a normal practice that subsidy payment for January-March quarter of last fiscal is done during April-June quarter of the following fiscal, the official explained. The three marketing companies are estimated to lose Rs 41,000 crore during January-March quarter of 2011-12. For the fiscal year as a whole, this loss is estimated to touch Rs 1.38 lakh crore.

The companies are losing Rs 14.29 a litre on diesel, Rs 570.50 for every cylinder of domestic LPG and kerosene Rs 31.04 a litre.

Upstream Contribution:

The official said that with crude oil price still ruling over $115 a barrel, the upstream companies are estimated to earn higher profit, so they should contribute according to the prevailing subsidy sharing mechanism. This mechanism defines upstream companies to contribute nearly 38 per cent.

In other words, they may be required to pay over Rs 15,500 crore for January-March quarter of 2011-12. If it happens then the biggest upstream company, ONGC, is likely to cough up Rs 13,300 crore. At this rate, the company will be giving Rs 43,300 crore for the entire year.

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. This was broadly followed till 2006-07 when the upstream contribution increased to 41.5 per cent and 2010-11 when it was 38.75 per cent.

Regulate petrol price: OMCs

Unable to increase petrol price in sync with the international prices, despite the product being deregulated, the oil marketing companies have requested the Government to bring the product under a regulated regime temporarily. The companies have also sought hundred per cent cash compensation.

Alternatively, they have suggested excise duty cut on petrol from Rs 14.78 a litre by an amount equivalent to the under-recoveries on petrol and simultaneously advise the States to reduce the tax Sales Tax rates which vary from 15 per cent to 33 per cent (that works out and varies from Rs 10.30 per litre to Rs 18.74 per litre).

Indian Oil Corporation has said that its inability to effect petrol price increase during December 16, 2011 to March 31, 2012 has resulted in total under-recoveries of Rs 1,036 crore on the fuel. The three oil retailers together incurred a loss of about Rs. 2,287 crore on petrol for the period.

Shishir @thehindu.co.in