Permanent subsidy-sharing formula unlikely before ONGC, IOC selloff
New Delhi   23-Aug-2010

The government is expected to take a call by November on how much subsidy it would give to oil firms this fiscal - well ahead of its proposed share sales in ONGC and IOC - but a permanent formula to share the burden of selling cheap fuel is unlikely to be adopted any time soon.

Finance ministry sources said that the government will have an idea about the resources available to it to meet the oil subsidy when it prepares the revised budget estimates in November. However, a permanent formula for sharing the burden of selling cheap fuel is still far away due to practical reasons such as the unpredictability in crude oil price, exchange rate and the government's ability to pay subsidy in any given year.

The government believes that the absence of a permanent formula may not hurt its interest at the time of a follow on share sale. Because the government is selling shares in both upstream ONGC, which gives subsidy and in retailer IOC which receives the subsidy, a lesser realisation of share price in one would be offset by the gain in the share price of the other, said an official privy to the development. ONGC's net profit for the June quarter had fallen by 25% to Rs 3,661 crore from a year ago as it gave a heavy discount of Rs 5,515 crore to refinery-cum-retailers such as IOC, HPCL and BPCL.

For this fiscal, the petroleum ministry wants the finance ministry to meet two-third of the estimated Rs 53,000-crore subsidy requirement. Clarity on this is expected by November.

The share sale in both ONGC and IOC the companies are under consideration of the petroleum ministry and the department of disinvestment. The government received higher than expected proceeds from the auction of the third generation spectrum this year, but the Rs 14,000 crore oil subsidy approved in the first supplementary demands for grants was the largest single item of spending in it, finance ministry sources told FE.

By November, the government will also have an idea whether the spending on various social security schemes are as originally planned, sources said.