Global rating agency Moody's Investors Service has described oil ministry's plan to divide fuel subsidies equally between the government and the two state-owned upstream oil and gas producers namely ONGC and Oil India, as 'credit positive' for both Oil marketing companies.
According to the global rating agency, the plan, if implemented would be credit positive for ONGC and OIL since this would reduce their share of fuel subsidies by 36%, or around Rs 22,000 crore, thus improving cash flows and profitability of the upstream companies.
Presently, ONGC and Oil India share the fuel subsidy burden with the government on an ad-hoc basis as decided by the government, however if the plan is implemented, their subsidy share would include an oil industry development levy, an existing tax based on their crude oil production.
The 50% share of fuel subsidy that these upstream producers would be supposed to pay, will sum up to around Rs 50,000 crore for this fiscal, down from Rs 67,000 crore a year ago, out of which, fuel subsidies will be around Rs 40,000 crore and an oil industry development levy would be around Rs 10,000 crore. Further, with the government paying the remaining 50% share, ONGC’s revenue and operating cash flows would come down by Rs 18,500-19,500 crore in the fiscal, while OIL's would rise by Rs 1,000-1,800 crore.