Oil Ministry decided to shift Rs 6000 crore subsidy burden to Oil PSUs

The oil ministry in May 2011 decided to shift the subsidy burden of 6000 crore for 2010-11 among oil marketing firms and upstream companies after the finance ministry rejected demands to fully compensate refiners for selling fuel at low administered prices. The quantum of subsidy burden will be proportionate to financial condition of the oil firms.

The finance ministry has given the final cash compensation of 20,000 crore against our demand of 26,000 crore for 2010-11. The balance will be shared by all oil PSUs equitably.

The move will impact financial performance of Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) scheduled to declare their financial results for 2010-11 from end week of May. The move will also raise the subsidy burden on ONGC, OIL and Gail India.

The three state-run fuel retailers would close the financial year ended 31 March 2011 with profits. However the profits would not be very significant. IOC's net profit is expected to be significantly less than its previous year's profit of 10220 crore. BPCL is expected to post a net profit below 2000 crore and HPCL's is expected below 1,000 crore.

Additional subsidy burden on state-run upstream companies such as ONGC and Oil India (OIL) and gas marketing firm Gail India would impact their financial results proportionately.

According to the usual practice, upstream firms were expected to share not more than one-third subsidy burden, which could be 26000 crore for 2010-11 at 78000 crore total revenue loss on selling fuel below market rates. The oil ministry was expecting the finance ministry to pay 60% of total revenue loss. the Finance ministry paid 20001 crore additional cash subsidy for 2010-11 thereby totalling its contribution to about 52% at 41,000 crore. The unmet burden on fuel retailers is now about 11000 crore against earlier estimate of about 5000 crore.