Upstream oil firms seek reduction in subsidy burden
New Delhi   27-Nov-2012

Upstream oil companies ONGC, Oil India and GAIL (India) will approach the Petroleum Ministry to sort out the issue of their huge subsidy burden.

“Currently, we sell crude oil at around $110 a barrel. After paying out a subsidy of $56 a barrel and other levies, we are left with a realisation of just $15 a barrel. On the other hand, we need at least $25 a barrel to continue exploration,” a senior official of an upstream company told reporters.

These companies will urge the Government either to allow cutting down on their capital expenditure or reduce the subsidy burden.

Rupee Depriciation

For instance, in the second quarter of 2012-13, ONGC paid a subsidy of Rs 12,330 crore, against Rs 5,713 crore in the same period the previous year.

The explorer sold every barrel of crude oil at $109.85 during July-September 2012. However, after a discount of $63.05 per barrel, the net realisation dropped to $46.8 for every barrel. Similarly, for Oil India, the subsidy burden for the second quarter of the current financial year was up to Rs 2,078.17 crore, against Rs 844.44 crore in the similar previous period. The upstream companies extend discounts to public sector oil marketing companies (OMCs) on crude oil and products sold by them.

This is to compensate the OMCs for selling diesel, domestic LPG and PDS kerosene at controlled prices. On their part, the oil marketing companies, which incur losses in selling petroleum products at suppressed prices, are also hit by rupee depreciation. The IndianOil Chairman, R.S. Butola, said that depreciation of the rupee against the dollar is a big setback for the refiner. “At some point of time, we thought it has achieved a level where it is sustainable but it’s a matter of worry (now),” Butola told media-persons on the sidelines of the World Energy Policy Summit here.

He, however, did not divulge any estimated impact of the rupee depreciation or the likelihood of a change in fuel prices to offset the losses.

Since April 1, the rupee has fallen steeply, by 8.4 per cent, against the dollar.

IndianOil Eyes Canadian Crude

IndianOil it is looking to expand its crude basket by importing oil from Canada. “We are trying to increase our basket, and we have identified some of the crudes in Canada which can go into our basket. Let us see how the logistics, etc., work but we’ve qualified some of the crudes,” said the IndianOil Chairman.