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Oil firms to bear cross of ballooning subsidy

New Delhi, Jan. 17: ONGC, Indian Oil Corporation, Oil India, Hindustan Petroleum Corporation and Bharat Petroleum Corporation will collectively cough up Rs 2,650 crore as a special dividend to enable the government to foot the LPG and kerosene subsidy bills.

Sources disclose that the board of directors of each company will now clear their respective proposals. The amount has been spread out among the companies according to their profitability. ONGC, the highest profit-maker, will shell out the largest amount, followed by Indian Oil.

According to official policy, the subsidy on LPG and kerosene has to paid from the Consolidated Fund of India. Around Rs 4,500 crore was allocated in the Budget (2002-03) to meet the expenditure on the subsidy for the two cooking fuels.

However, since the international prices of LPG and kerosene have been much higher than anticipated, it has been estimated that Rs 7,100 crore will be required to meet the subsidy bill in the current fiscal. The gap will be filled through special dividend. This estimate has been calculated on the basis of a Rs 70-per cylinder subsidy for LPG and a Rs 1.50 per litre subsidy for kerosene.

The government decided that with the dismantling of the administered price mechanism (APM), the subsidy on LPG and kerosene would be paid at a flat rate and any increase in price above this level would be passed on to the consumer.

In this liberalised scenario, the national oil companies were to be paid international prices for their products so that they could face global competition. The national oil companies have been asking for an increase in the price of LPG and kerosene as they are losing money on sales. However, while the prices of another petro-goods, including petrol and diesel, have been periodically increased, the cooking fuels have not been touched.

The government has not been able to implement its policy as any hike in the price of cooking fuels would have a political backlash, especially in view of elections in crucial states such as Gujarat in the recent past and Himachal Pradesh in the coming month.

In fact, the Rs 40 a cylinder increase in the price of cooking gas in the last budget had to be rolled back by as much as Rs 20 due to adverse political fallout. Since international prices have soared due to the trouble in Iraq and the oil strike in Venezuela, the government is likely to increase the price of LPG and kerosene in the next budget. However, keeping in mind the previous experience, this hike would have to be modest.

The fact that the forthcoming budget is the last budget for a full year before the next general elections will also mean that the government will prefer stick to soft options.

In the earlier controlled regime, ONGC and OIL were paid a fixed price of $ 16 per barrel for their crude even though international prices ranged from $ 20 to 30 per barrel. The difference in the price of around Rs 10,000 crore used to pay the subsidy on LPG kerosene and diesel.

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