New Delhi, Sept. 6: ONGC and OIL will take a hit of $20 per barrel after contributing Rs 14,000 crore to a bail-out package for oil firms.
The package will help Indian Oil Corporation make a profit and contain the losses of Bharat Petroleum and Hindustan Petroleum.
Standalone refineries like MRPL, NRL Kochi Refineries, Chennai Petroleum Corporation and Reliance will also offer a 5 per cent discount on their sales to provide a cushion to IOC, BPCL and HPCL.
Petroleum secretary S.C. Tripathi said one-third of the losses that the downstream oil marketing companies will suffer during the current fiscal will be offset by ONGC, OIL and Gail. As a result, ONGC would end up paying four times its subsidy contribution last year.
He said there was no point in the downstream companies paying over $60 a barrel to ONGC when they were not being allowed to sell their products at market prices. Hence the $20 per barrel discount on domestic crude being supplied to them would correct this “anomaly”.
He said IOC, which had paid Rs 2,000 crore as corporate tax, would be in a position to pay around Rs 1,000 crore this year.
Tripathi said the performance of the downstream oil marketing companies would show a marked improvement from the third quarter of the current fiscal as a result of the Rs 40,000-crore burden sharing formula put in place.
He said the burden was being spread across all the companies along the value chain of the oil and gas sector so that the burden on the consumer was minimum.
The government may issue IOC, Bharat Petroleum, Hindustan Petroleum and IBP oil bonds worth Rs 10,000 crore to Rs 12,000 crore to compensate them for not raising LPG and kerosene prices. The move will improve their balance sheets and the bonds could be encashed to meet liquidity needs. The oil firms can even raise cheaper loans with the bonds.
Finance minister P. Chidambaram had provided for only a Rs 3,600-crore subsidy for LPG and kerosene in his budget, while the losses for the rest of the financial year alone on the sales of these two fuels are expected to be in the region of Rs 15,000 crore. It now remains to be seen whether the finance ministry issues bonds for the entire amount or stops short at Rs 10,000 crore.
Petroleum minister Mani Shankar Aiyar said after the cabinet meeting that the government was concerned about the oil companies not being able to meet their capital expenditure requirements, which is essential if the country has to ensure its energy security.
While the package announced today does represent a departure from the free market system, considering the political compulsions of the government, it is a pragmatic step to deal with a crisis of international proportions.