The Telegraph
Since 1st March, 1999
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Oil majors squabble over gas handouts

New Delhi, April 14: A fierce tussle seems to have broken out between the upstream and downstream national oil majors with the dismantling of the administered price mechanism in the hydrocarbon sector.

ONGC is crying foul over an Indian Oil Corporation move to make it foot part of the ballooning subsidy bill for LPG and kerosene.

Senior ONGC officials told The Telegraph that it is “not fair for IOC to eye our profits”. ONGC’s net profit for fiscal ended March 31, 2003, has shot past the Rs 10,000-crore mark due to spiralling crude prices. It is the highest-ever profit by an Indian company.

Interestingly, both ONGC chairman Subir Raha and IOC chairman M. S. Ramachandran have served as executive directors of the all-powerful Oil Co-ordination Committee (OCC) which managed the intricate finances of the Indian oil sector during the controlled regime.

IOC is of the view that ONGC is the chief gainer from the dismantling of the administered price mechanism as it is now getting international prices for its crude and has made a huge profit as a result.

The downstream oil companies — IOC, Bharat Petroleum and Hindustan Petroleum — on their part claim that they are getting a raw deal as they have to pay international prices for ONGC crude but have to sell LPG and kerosene at prices far below the market price. The government pays only part of the subsidy.

A senior IOC official told The Telegraph that at current prices the downstream oil companies are losing around Rs 90 on each cylinder of cooking gas that they sell and Rs 5 per litre on kerosene. Since both these commodities are politically sensitive, the government cannot afford to raise prices. On the other hand, the compulsion of restricting the budget deficit prevents the finance ministry from increasing the allocation for the subsidy. According to the official policy this, in any case, has to be phased out.

As a result, the additional burden borne by the downstream oil companies has been increasing and for fiscal ended March 31, 2003, this is put at over Rs 4,000 crore.

Earlier, the government had collected about Rs 2,600 crore from all the national oil companies, including ONGC, as a special dividend for meeting the extra burden on LPG and kerosene. However, the finance ministry did not actually pass on this sum to the downstream companies. The amount allocated for LPG and kerosene subsidy in the current budget is even less than the last budget which will increase the burden on the downstream companies.

ONGC officials, however, opine that LPG and kerosene form only 12 to 15 per cent of the total output of the downstream oil companies. They get international prices for the rest of their product range such as petrol, diesel, aviation turbine fuel, furnace oil and naphtha.

They further argue that ONGC has made heavy investments in buying stakes in good overseas oilfields such as Sakhalin in Russia and Greater Nile in Sudan and is looking for more. This is aimed at ensuring the energy security of the nation from which the downstream oil companies will also benefit, they added.

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