Government conditionally frees ONGC, OIL from paying fuel subsidy

The government has exempted oil producers ONGC and Oil India from payment of fuel subsidy if the global oil prices average up to $ 60 a barrel, but will pay a graded rate beyond this threshold.

“We have received a communication from the Ministry of Petroleum and Natural Gas detailing subsidy sharing formula for Q1 of the current fiscal. If crude oil prices are below $ 60 per barrel, we are not liable to pay any amount for under-recoveries.

“If oil prices are between $ 60-100 per barrel, we would have to pay 85 per cent of the incremental rate over $ 60. And if oil price is over $ 100 per barrel, we would be liable to 90 per cent of the incremental rate we get over and above $ 60 in fuel subsidy,” ONGC Chairman and Managing Director Dinesh K Sarraf said.

The government regulates price of cooking fuels LPG and kerosene to shield the poor. The difference between the cost and the retail selling price is borne by the government by way of cash subsidy and upstream producers like Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL).

The upstream producers were however exempted from subsidy payment in the fourth quarter of 2014-15 fiscal when the government decided to pick up the entire tag of Rs 5,223 crore under-recovery or revenue loss on selling fuel below cost.

Sarraf said the formula notified earlier this week is only for the first quarter of current fiscal.