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New Delhi: In a major overhaul of the oil subsidy-sharing mechanism, state-owned upstream explorers such as Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL) will be exempted from sharing subsidy on the sale of domestic cooking gas in the current financial year, petroleum secretary Saurabh Chandra said.

This comes in the backdrop of the National Democratic Alliance (NDA) government’s plan to divest its stake in firms such as ONGC.

Subsidy rationalization allows upstream companies to invest more in exploration and production, Chandra said while speaking at a conference organized by lobby group Federation of Indian Chambers of Commerce and Industry (Ficci).

Oil India and ONGC had been exempted from the subsidy burden in the last quarter of 2014-15, with falling international crude prices providing a respite to the government on the subsidy front. The plan is in sync with the government’s strategy of trimming subsidies by using technology and direct cash transfers to plug leakages.

The 2015-16 budget has estimated India’s subsidy bill at 2.43 trillion, around 9% below the revised estimate of 2.66 trillion for 2014-15.

The petroleum subsidy is estimated at 30,000 crore for 2015-16, 50.22% less than the revised estimate of 60,270 crore for 2014-15. The revised estimate is almost 5% below the budgeted estimate of 63,426.95 crore.

While petrol and diesel prices have been deregulated, prices of domestic cooking gas and kerosene are set by the government.

“Alleviation of the LPG (liquefied petroleum gas) subsidy itself has the potential to improve ONGC/OIL’s net realization to at least about $55/bbl (per barrel)," Religare Institutional Research said in a 8 April statement.

The difference between market prices and retail fuel rates—to be borne by oil marketing firms this fiscal year—is estimated at 42,500 crore. The budget has earmarked 22,000 crore for subsidy on domestic cooking gas and 8,000 crore for kerosene. Besides the fall in international crude oil prices, a stable rupee and continued monthly price hikes for petrol and diesel could help contain the subsidy bill.

In another development, Chandra said the government plans to auction 69 blocks owned by public sector explorers such as ONGC and OIL. These so-called marginal fields were awarded to the state-owned firms on a nomination basis but remain undeveloped because they lie in tough terrain or had low reserves.

This comes in the backdrop of the government’s plan to map 3.14 million sq. km of India’s sedimentary basin in five years. Interest in finding hydrocarbons has waned, with around 70% of Indian basins still largely under-explored. This comes at a time when the government is reworking the incentive regime governing hydrocarbon exploration.

According to the Energy Statistics report prepared by the ministry of statistics and programme implementation, the estimated domestic reserves of crude oil and gas are at 762.74 million tonnes and 1,427.15 billion cubic metres, respectively. India follows the US, China and Russia in energy use, accounting for 4.4% of global energy consumption.

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