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Marketing cos may have to bear auto fuel subsidy

Marketing cos may have to bear auto fuel subsidy
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First Published: Sat, Sep 12 2009. 12 54 AM IST

Crude concerns: Oil secretary R.S. Pandey says the government will not subsidize oil marketing firms for under-recovery on petrol and diesel. Sanjit Das / Bloomberg``
Crude concerns: Oil secretary R.S. Pandey says the government will not subsidize oil marketing firms for under-recovery on petrol and diesel. Sanjit Das / Bloomberg``
Updated: Sat, Sep 12 2009. 12 54 AM IST
Mumbai: Exploration firms may have to bear most of the losses from auto fuel subsidy, expected at around Rs15,000-16,000 crore in fiscal 2010, till global crude prices are at $70 a barrel, oil secretary R.S. Pandey said in an interview on Friday. But oil marketing companies (OMCs) also may have to bear some of the subsidy. Edited excerpts:
You have just finished many road shows for the New Exploration Licensing Policy-8 (Nelp-8). What was the response?
Crude concerns: Oil secretary R.S. Pandey says the government will not subsidize oil marketing firms for under-recovery on petrol and diesel. Sanjit Das / BloombergRs.Rs.
The response has been good in terms of attendance and interest. The attendance at Bombay, Houston, Kalahari and London have been better than last time. The US government, in particular, has been very helpful and they organized a good meeting with all the major companies in the US.
But the bids are yet to be received; the date is early October, rather mid-October, and let us see how the response comes. But because of the prospectivity of India, the Krishna-Godavari (KG) basin gas, the Cairn Energy (find), while on the western part of our country, the response so far has been good, but there is also downturn in the global economy... So let us see how the final bids go.
Would the auto fuel losses or subsidies be borne at all by the OMCs or would it be fully borne by a combination of the government and the upstream companies?
This year’s situation is very different from what it was last year; last year it has been volatility of an extreme kind, it was really very bad. The overall extent of subsidy was Rs1.03 trillion; it was a very difficult year.
This time, the situation is somewhat different. But this time also, the consumer’s interest has to be taken on board; it’s a difficult situation.
The estimates are that the overall under recovery when we close the year will be to the extent of Rs45,000-50,000 crore. Of this, about Rs17,000 crore will be on account of kerosene, about Rs12,000-13,000 crore will be on account of liquefied petroleum gas (LPG), and the remaining Rs15,000-16,000 crore will be on account of petrol and diesel. As for kerosene and LPG, assuming that crude stays more or less at the current level, which is around $70 per barrel, that will be contributed entirely by government.
As far as the subsidy on auto fuel is concerned, which is estimated to be around Rs15,000-16,000 crore, most of it will come from upstream companies, but some sharing could be done by downstream companies also.
Are you saying that the under-recovery will be split between upstream and downstream companies? In what proportion?
The government has decided that the under-recovery on LPG and kerosene will be borne entirely by the government. Now the question of under recovery for petrol and diesel is estimated to be about Rs15,000-16,000 crore. A bulk of it would be borne by the upstream companies and to some extent, it could be borne by the downstream companies also. The government is not going to subsidize this Rs15,000-16,000 crore.
Would 80% of it come from upstream companies, or more?
I won’t hazard a guess in terms of percentages. We will look at the profitability of upstream companies on the nominated blocks and also look at the profitability of the oil marketing companies and take a call.
Will compensation in any form be given to OMCs through bonds?
Yes. On account of kerosene and LPG, the total under recovery would be compensated by the government. Most likely, the form would be bonds but let us see how it goes.
We understand that there is a cabinet note on natural gas pricing ready.
The tariff commission has recommended that the administered pricing mechanism of gas prices require a revision and that is under process. When it will be decided and in what form, it is premature to say at this stage.
Will there be a comprehensive overhaul of policy along the lines of the documents lying with you from various committees, including the Rangarajan Committee, which would be a big policy shift rather than a quarter-to-quarter movement on these decisions?
Quarter-to-quarter, the extent of subsidy and the sharing among the companies is decided in the ministry. But about the long-term policy resolution of the whole issue, recently in pursuance of the announcement in the budget by the finance minister, the petroleum ministry has constituted a committee headed by Kirit Parikh. There are two more economists, the secretaries in the ministry of petroleum and finance are also members, and in three months time, it is expected that this committee will come out with some kind of a recommendation for consideration of the government about the long-term view, about retail prices of essential petroleum products. So let us wait and see.
Any timeline for fuel pricing reforms?
The committee has been given three months timeline and let’s see after the report comes then how the government accepts or modifies it.
cnbctv18@livemint.com
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First Published: Sat, Sep 12 2009. 12 54 AM IST
More Topics: CNBC-TV18 | Oil | Fuel | RS Pandey | Subsidy Petrol |