Subsidy burden zooms for ONGC, OIL to impact Q3 numbers

Oil & Natural Gas Corporation Ltd. | Oil Exploration | Oil & Gas | BSE: 500312 | NSE: ONGC

27 Jan 2012 Evaluate

The subsidy burden of upstream oil companiesOil Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) have more thandoubled in the third quarter ended December 31. ONGC’s subsidy burden for thequarter is Rs 8,875 crore, compared to Rs 4,222 crore in the correspondingquarter of last year. OIL’s burden is expected to jump 135 per cent to Rs 1,313crore This year, the upstream companies willprobably have to bear the highest ever burden towards oil subsidy, as priceshave not been increased for long and under-recoveries of the three oilmarketers will be at a record high. The two government upstreamcompanies, along with GAIL, make good a third of the losses made by governmentoil marketing companies (OMCs) on selling diesel, kerosene and LPG atgovernment rates.

The OMCs — Indian Oil, Bharat Petroleum andHindustan Petroleum — purchase crude oil at market rates but are required tosell diesel, kerosene and liquefied petroleum gas (LPG) at government-setprices. These losses are usually compensated by a cash subsidy from thegovernment and discounts on crude purchase from ONGC and OIL. For the quarterjust ended, the OMCs incurred a revenue loss of Rs 32,413 crore on regulatedsale of the three products, of which a third, or Rs 10,805 crore, has to comefrom ONGC, Oil India and GAIL. Currently, the three OMCs are incurring arevenue loss of Rs 442 crore daily on sale of the three products. Their loss isRs 12.95 on every litre of diesel, Rs 28.50 on every litre of kerosene and Rs326 on every domestic LPG cylinder. The prices of these three politicallysensitive products that account of around 60 per cent of OMC sales, have notbeen revised since June 25 last year. Their prices are unlikely to be revisedtill early March, when five state assembly polls conclude.
In 2010-11, upstream companies were madeto bear 38.8 per cent of the OMCs’ gross revenue loss. This year, so far theone-third formula has been followed for calculating their subsidy share.However, watchers expect the share to be increased during the fourth quarter.

ONGC Share Price

279.25 -4.70 (-1.66%)

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Company Name	CMP
ONGC	279.25
Oil India	454.40
Jindal Drilling&Inds	535.85
Deep Industries	457.70
Asian Energy Service	297.85
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