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Oil and Natural Gas Corp (ONGC) and Oil India have demanded that the cooking gas and kerosene subsidy borne by the upstream companies so far should now be shifted onto state fuel retailers amid the continuing oil slump that is squeezing producers' profits but boosting retailers'.
Both ONGC and Oil India have written to the government demanding relief from shouldering the burden of subsidy. The two companies have to partly bear subsidy that helps fuel retailers such as Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp sell kerosene and cooking gas at the government-set rates to consumers.
"It won't bring a huge relief to ONGC and Oil India, but the way oil prices are today, every dollar counts," a senior executive at an upstream firm said. Oil prices have plummeted to under $30 a barrel, dangerously close to the cost the state oil companies incur in producing crude oil. This has left ONGC, the most profitable Indian company until 2013-14, flirting with the prospect of losses.
With oil prices crashing and a deregulation of diesel sales by the government, the overall subsidy burden for the upstream companies as well as the government have dramatically fallen but companies hurt by oil collapse are seeking every relief they can.
In the first quarter of the current fiscal year, ONGC bore a subsidy of Rs 1,133 crore and Oil India Rs 167 crore. In the second quarter, the subsidy burden was Rs 595 crore and Rs 84 crore for ONGC and Oil India, respectively.
The benefits of low oil prices are being shared by the government, consumers and the fuel retailers. Consumers are paying less for fuel while the government has repeatedly increased duties on fuel to shore up its revenue. "Low oil prices have also resulted in gains for the state fuel retailers and that puts them in a position to easily share the burden of subsidy, which is anyway small today," the executive said.
Besides a relief from sharing subsidy, the upstream companies are also hoping the government will reduce cess on oil production that is taking away a big chunk of their income. Oil producers have to pay a fixed cess of Rs 4,500 per tonne of output. Companies have been demanding the cess be calculated on ad-valorem basis and be fixed at 8%, effectively halving the outgo for the companies. But the finance ministry has so far rejected the demand.
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