OilMin to move Cabinet to ease subsidy burden on ONGC, OIL

Oil Secy Vivek Rae says firms can monetise 70 mn tn find if realisation is above $65/bbl

NEW DELHI : State-owned exploration companies Oil and Natural Gas Corp Ltd and Oil India Ltd could monetise around 70 mln tn of crude oil, if their subsidy burden is reduced and they are able to get net realisation of over $65 per barrel, the government said.

“Our area of concern is that our upstream companies’ subsidy sharing burden has become very high. And their cash resources are, therefore, getting squeezed,” Oil Secretary Vivek Rae said on the sidelines of the pre-conference of Petrotech 2014.
“They need more money to monetise some of their discoveries which are otherwise not viable. There are certain discoveries which are viable at $65 a barrel,” he added.
The gap between gross and net realisation is mainly due to subsidy given to state-owned fuel marketing companies in the form of discounts on sale of crude oil.
As per an ad-hoc subsidy-sharing mechanism, public sector oil companies typically share with the government the revenue losses incurred on sale of subsidised fuels. Rae said there was a need to review the burden sharing formula.
“The oil companies are getting only $40 a barrel, then they can’t invest in those discoveries. And it makes sense to invest $65 and get that oil out rather than paying $105 and getting it from abroad,” Rae said. These discoveries are in Bombay High and the Krishna Godavari basin.
Around 70 mln of crude oil resources are trapped in these areas. Given the issues relating to the subsidy burden of the upstream companies, the government is also in the process of circulating the recent recommendations of a panel led by Kirit Parikh on fuel pricing.
The note is likely to be circulated in the next few days for inter-ministerial discussion, after which it will be sent to the Cabinet.
“We are looking the Kirit Parikh committee report. And the pricing. We are also looking at the fact that upstream companies are facing many problems because…subsidies is very high and we are not getting enough resources. So, we are looking at the whole set of issues. It will go to the Cabinet in a few weeks,” Rae said.
“We are not recommending anything, we are just analysing the proposals. And obviously feasibility of implementing all those recommendations will be subject to various factors and considerations,” he added.
The Kirit Parikh panel had recommended a Rs.5 hike in diesel prices, Rs.250 per LPG cylinder increase in the price of domestic cooking gas, and Rs.4 a litre in kerosene prices with immediate effect to cut the fuel subsidy bill by Rs.72,000 crore.
BULK DIESEL SALE
The government is considering a proposal to partly roll back bulk diesel de-regulation and allow sale of diesel at subsidised rates to some bulk consumers such as state transport units.
“We are looking at partial roll back of bulk diesel,” Rae said. “Bulk diesel sales have dropped dramatically. Buses are now going to retail petrol pumps, and therefore, the subsidies are being incurred indirectly. So we are looking at that,” he said.
As part of its attempt to gradually align diesel prices to global rates, the government had allowed state-owned oil marketing companies to raise price of the fuel by 50 paise per ltr each month and allowed dual pricing of the fuel wherein bulk users would have to pay market rates.
The January 2013 decision to ask bulk users of diesel like the railways and defence to pay market price, which is about Rs 10 a litre more than petrol pump rates, had led to protests from several state transport utilities.
The ministry is also in the process of notifying the new gas pricing formula that will come into affect from April. -Cogencis