Oil subsidy sharing scrapped for 2015- 16

After a prolonged delay, the Narendra Modi government has decided to scrap the fuel subsidy- sharing mechanism and bear the entire burden of the stateowned oil marketing companies for 2015- 16. This would make divestment of Oil and Natural Gas Corporation (ONGC) attractive and could quicken the process as investors have often raised queries over subsidies.

Although the move is likely to increase the Centre’s combined liquefied petroleum gas ( LPG) and kerosene subsidy burden by ₹ 10,000 crore, it will improve the bottom lines of exploration and production companies such as Oil India, ONGC and GAIL.

“The decision was taken today in a meeting that was headed by Finance Minister Arun Jaitley and attended by Oil Minister Dharmendra Pradhan,” a senior government official said on in oil companies,” the person added.

Jaitley had budgeted fuel subsidy at ₹ 30,000 crore for this financial year. The official said it could now go up to as much as ₹ 40,000 crore but did not elaborate on how the government planned additional sum.

The government’s plan to completely exempt upstream oil companies from the subsidy burden in 2015- 16 might turn out to be too ambitious.

The official also did not give details on how the ₹ 40,000- crore projected for LPG and ₹ 8,000 crore ( 26.7 Going by that, the amount earmarked for LPG could go up to ₹ 29,320 the year. For the Budget, the policymakers had assumed an average oil The five per cent stake sale of ONGC, global oil prices and uncertainty among investors over the company’s earning prospects pending the proposed new subsidy- sharing mechanism.

A five per cent stake sale at current market prices will fetch the Centre about ₹ 13,000 crore.

Source: Business Standard; 01 May 2015

URL: http://epaper.business-standard.com/bsepaper/svww_zoomart.php?Artname=20150501aA001101005&ileft=1&itop=1160&zoomRatio=130&AN=20150501aA001101005

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