The Hindu : Oil companies to bear LPG, kerosene subsidy burden

Online edition of India's National Newspaper
Wednesday, Oct 29, 2003

National

National

Oil companies to bear LPG, kerosene subsidy burden

By Our Special Correspondent

NEW DELHI OCT. 28. In a reversion to the earlier system of cross-subsidies in the petroleum sector, the Union Government today announced that the subsidy on LPG and public distribution system (PDS) kerosene would be borne by the public sector oil companies. This is a sequel to the decision not to raise prices of these sensitive products in the current fiscal with an eye on the coming elections. The resulting huge subsidy burden of about Rs. 8,200 crores will now have to be absorbed by the public sector oil companies barring Oil India Limited (OIL).

Reliance Industries has also been kept out of the ambit of the subsidy burden but the Petroleum Minister, Ram Naik, said the public sector companies could revise the terms and conditions of their existing marketing agreement with that company.

He said the Government could not give directives to private sector companies to absorb subsidies needed in the national interest. At present, the public sector oil companies market petroleum products produced by RIL refineries since it does not have a network of retail outlets as yet. The two-year marketing agreement with RIL is due to expire on March 31 next.

Briefing the media on the new mechanism for sharing the subsidy, described as "under-recoveries'' on LPG and PDS kerosene, Mr. Naik said OIL had been kept out of the scheme as it was a smaller company with operations concentrated in the Northeast region.

The broad parameters of the new mechanism for sharing subsidy were that the oil marketing companies would strive to make up for about one third of the projected under-recoveries by cross-subsidising through other retail products. The balance under recoveries would be equally shared among the oil marketing companies and the upstream sector companies of Oil and Natural Gas Corporation (ONGC) and the Gas Authority of India Limited (GAIL). The OMCs include the Indian Oil Corporation (IOC), the Hindustan Petroleum Corporation Limited (HPCL), the Bharat Petroleum Corporation Limited (BPCL) and IOC's subsidiary IBP Limited.

Within the one-third allocation to be borne by the upstream companies, the contribution of ONGC and GAIL would be about Rs. 2,400 crores. This would be in terms of appropriate discounts on the prices of crude oil, LPG and kerosene supplied by them to the oil marketing companies. On an average, ONGC and GAIL would allow a discount of 2.35 per barrel on crude oil and 20 per cent in LPG and kerosene prices determined on import parity basis.

On the cross-subsidy issue, he stressed this did not mean that petrol and diesel prices would be raised to meet the burden of LPG and PDS kerosene. The marketing companies already had a cushion available on petrol and diesel, which would enable them to absorb the LPG and kerosene burden. It should thus be possible for them to recover about Rs. 2,700 crores though the balance would remain as under-recoveries. Mr. Naik also clarified that the revenue of State governments in terms of crude oil would not be affected.

He said the decision not to raise prices of LPG and kerosene had been taken since these were products of mass consumption. The subsidy on LPG this year was estimated at Rs. 106 per cylinder and on PDS kerosene at Rs. 3 per litre.

Printer friendly page
Send this article to Friends by E-Mail

National