Bearing the burden

New Delhi, June 16: The government is likely to make upstream giant ONGC cough up a larger amount towards the country’s LPG and kerosene subsidy burden and may crack the whip on Oil India Ltd (OIL) as well to make it shell out money for this kitty.

While Gail has also been tapped to contribute towards the subsidy, OIL had been spared until now. A senior petroleum ministry official told The Telegraph, “The situation is more precarious this time around and OIL is likely to be roped in as well.”

Sources reveal that the petroleum ministry has already sounded ONGC on the fact that it will have to contribute more than Rs 2,600 crore that it gave to downstream oil companies Indian Oil, Bharat Petroleum and Hindustan Petroleum Corporation as part of its share to meet the subsidy bill for 2003-04.

ONGC has been complaining to the ministry that its bottomline has been hit due to the Rs 2,600-crore that it had to shell out for the subsidy burden. It has pointed out that if it has to contribute an ever-increasing share towards the subsidy, its business expansion plans will be hit.

According to ONGC, its profit for 2003-04 is expected to be lower than the Rs 10,000-crore net profit that the company clocked in 2002-03, which would send a wrong signal to the market, especially in a year when the equity has been offloaded in the market.

As an alternative, ONGC has floated a proposal to cap its crude price at $35 per barrel while anything above this amount can be collected as cess for the subsidy. However, the government is worried about the fiscal deficit and is not willing to let a cash cow like ONGC get away easily.

According to sources, the situation “is unprecedented as the average cost of the Indian basket of crude is working out to around $35 per barrel for the first quarter of the current fiscal. This represents a $8 per barrel jump over the $27 per barrel average price for crude imported during 2003-04''.

The average import price is expected to come down as international crude prices have started moving down again but the overall average is still likely to be higher than last year.

OIL had been spared last year as it is a much smaller company than ONGC. It produces around 3 million tonnes compared with ONGC’s over 26 million tonnes. However, since it has earned a net profit in the region of Rs 900 crore and like ONGC is getting the benefit of international prices for its crude, the current thinking is that it should also bear a share of the burden that has been thrust on the downstream marketing companies.

IOC, Bharat Petroleum and Hindustan Petroleum have been cribbing over the fact that they have been marketing goods below the market price while the upstream oil companies are getting international prices for their produce.

ONGC crude is of a very high quality and is benchmarked to the bonny light crude of Nigeria which carries a higher price tag than even the Brent crude of the UK. ONGC produces around one million barrels of oil a day. And if the price of crude goes up by $1 it rakes in an additional million dollars on that day.