Subsidy woes stall ONGC stake sale; Govt looks at OIL & GAIL
Finance Minister Arun Jaitley discussed possible disinvestment candidates with Oil Minister Dharmendra Pradhan at a meeting here on Thursday but nothing concrete was finalised.
The government was to sell 5 per cent of its stake in the country’s biggest oil and gas producer ONGC to raise Rs 17,000-18,000 crore.
But the double impact of tumbling global oil prices and the rising subsidy burden has left the ONGC stock battered. It has slipped from Rs 472 in June last year to Rs 341.60 (at close of market on Thursday). At current price, the government will get no less than Rs 15,000 crore.
Pradhan was however hopeful of getting a good price for ONGC as the government is reworking the subsidy sharing formula.
“The government is looking at new subsidy sharing formula. As far as ONGC is concerned, they have some issues regarding subsidy sharing formula. Let’s have relook on the issue. I am sure ONGC will get better price,” he said.
However, the Department of Disinvestment will take a call on time of divestment of ONGC, he told reporters after meeting with Jaitley.
The Oil Ministry wants the payout by ONGC and other upstream producers like OIL for subsidising LPG and kerosene to be reduced to the extent of the statutory oil cess they pay to the government.
According to a new subsidy sharing formula, the payout is to be reduced to the extent of Rs 4,500 per tonne oil development cess they pay to the government. The cess in current fiscal will total Rs 10,500 crore.
ONGC and OIL have already paid Rs 31,926 crore in fuel subsidy in the first half and if the ministry
proposal is accepted, their payout in remainder of the current fiscal will be no more than Rs 8,000 crore.
Upstream producers like ONGC met nearly half of the revenue loss or under-recoveries that fuel retailers incurred on selling cooking fuel and diesel until recently at government controlled rates.
This dole, which was in the form of deep discounts on oil ONGC sold to refineries, had strained its balance sheet as its net realisation fell below the economic cost of oil.
At the meeting, discussions focused on selling of government stakes in oil companies other than ONGC, a top source said.
“Well I am not ruling out ONGC but today’s meeting was on other oil companies. I can tell you all options are open and I am watching the market and getting enough stocks in place, when the market is good I will do,” the source added.
The other companies may be OIL and GAIL as well as refiners like Bharat Petroleum Corp Ltd (BPCL). The Cabinet has approved sale of 5 per cent shares out of government shareholding of 68.94 per cent in ONGC.
Sources said subsidy burden on upstream oil companies has increased from Rs 32,000 crore or 30 percent of the total under-recovery in 2008-09 to Rs 67,021 crore (48 percent of the total under-recovery) in 2013-14.
In 2013-14, ONGC paid a record Rs 56,384 crore subsidy, which this fiscal is likely to come down to around Rs 32,000 crore. This has significantly constrained the capacity of these companies to increase their exploration efforts in difficult areas, thereby adversely affecting the country’s domestic oil production. Sources said the ministry wants the cess being collected by the government from the nominated fields of the public sector upstream oil companies be considered part of the subsidy burden share borne by ONGC and OIL.
Thus, the upstream share would reduce to the extent of cess being paid by them to the government.
With international oil prices slumping, total under-recoveries this fiscal are estimated around Rs 78,000 crore. Of this, about Rs 51,000 crore have already been accounted for in the first half where ONGC paid Rs 26,841 crore subsidy, OIL Rs 4,085 crore and GAIL Rs 1,000 crore.