ONGC, OIL free from subsidising retailers, if oil below $60 a barrel

NEW DELHI: The Oil Ministry has set interim rules that exempt state-run upstream companies such as ONGC and OIL from giving any discount on crude and refined fuel sales if global oil prices average up to $60 a barrel this quarter, two sources with direct knowledge of the matter said.

The new rules notified earlier this week need Finance Ministry’s approval to be extended. Reuters file photo

New Delhi, May 22

The Oil Ministry has set interim rules that exempt state-run upstream companies such as ONGC and OIL from giving any discount on crude and refined fuel sales if global oil prices average up to $60 a barrel this quarter, two sources with direct knowledge of the matter said.

Oil and Natural Gas Corp, Oil India and GAIL (India) sell crude and fuels such as cooking gas at discounted rates to partly compensate retailers for losses they incur on selling fuels at government-set cheaper rates.

Under the new rules, which are applicable only for the three months to June and would need the Finance Ministry’s approval to be extended, upstream firms will not have to pay any subsidy as long as crude prices average $60 or less, the sources said.

For prices between $60 and $100 a barrel, the companies will have to give a discount of 85% of the incremental price, said the sources who declined to be named as they are not authorised to speak to media.

“The Oil Ministry on Wednesday informed the upstream companies about the formula that they should consider while giving subsidy to fuel retailers in April-June,” one of the sources said.

Last quarter, the government had exempted ONGC, Oil India, and GAIL from paying a subsidy after a crash in global crude prices. At present, global oil prices LCOc1 are hovering at about $66 a barrel.

The Oil Ministry last year sought the Finance Ministry’s approval for a formula to end arbitrary decisions on the size of subsidy payments by companies such as ONGC, in which the federal government wants to sell a 5% stake.

On the top of the discount, state-run fuel retailers — Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum —are compensated by the Finance Ministry for selling cooking gas and kerosene at cheaper rates.

ONGC chairman Dinesh K Sarraf said, “We have received a communication from the Ministry of Petroleum and Natural Gas detailing subsidy sharing formula for Q1 of the current fiscal. If crude oil prices are below $60 per barrel, we are not liable to pay any amount for under-recoveries.”

“If oil prices are between $60-100 per barrel, we would have to pay 85% of the incrmental rate over $60. And if oil price is over $100 per barrel, we would be liable to 90% of the incremental rate we get over and above $60 in fuel subsidy, he said.

Sarraf said the formula notified earlier this week is only for the first quarter of current fiscal. — Agencies