The Oil and Natural Gas Corp has asked the government to review the scheme of sharing of liquefied petroleum gas and kerosene subsidy with upstream firms and said the scheme should not be extended beyond March 2004.
ONGC and gas firm GAIL were asked by the government to bear one-third of the Rs 7,200 crore (Rs 72 billion) losses retailing firms Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd had to suffer on selling cooking gas LPG and kerosene below the cost.
This has led to ONGC profits dip by 3 per cent to Rs 6,678 crore (Rs 66.78 billion) in April-December 2003 while net profits of beneficiary oil marketing companies have increased by 39 per cent, ONGC chairman and managing director Subir Raha wrote to petroleum secretary B K Chaturvedi.
Besides, ONGC also has to bear subsidy on natural gas, which came to Rs 30,000 crore (Rs 300 billion) during April 2000 to March 2004.
"In the roadshows for recent divestment in ONGC's equity by the government, the prospective investors had raised their concern to the petroleum ministry regarding government decision on ONGC's sharing of LPG/kerosene subsidy. It was informed to the investors that such sharing is not a part of government policy and the decision is applicable only for the financial year 2003-04.
"To maintain the investors confidence, post-divestment of 10 per cent equity, it would be required that ONGC is not asked to share the LPG/kerosene subsidy beyond March 31," Raha wrote on March 26.
"The downstream oil companies (IOC, BPCL and HPCL) often argue that the profitability of upstream oil companies has increased quite significantly after the deregulation in oil sector in April 2002 while their own profitability is under pressure and therefore, the under-recoveries of oil marketing companies should be shared by upstream oil companies.
"While it is true that deregulation has coincided with high level of crude prices and upstream oil companies have got a benefit of high crude prices prevailing in the international market, but the profitability of downstream companies has increased even more significantly," Raha wrote.
While the net profit of ONGC has increased by 70 per cent to Rs 10,529 crore (Rs 105.29 billion) in 2002-03, the combined profits of OMCs increased by 97 per cent to Rs 8,902 crore (Rs 89.02 billion), and IOC's profit went up notably by 112 per cent to Rs 6,115 crore (Rs 61.15 billion).
Raha said natural gas prices remained at Rs 2,850 per thousand cubic meters since October 1999. This is less than 40 per cent of the international price which ought to have come into effect by now.
Even when gas prices are raised to Rs 3,100 per thousand cubic meters, "ONGC would still be bearing subsidy to the tune of Rs 8,000 crore (Rs 80 billion) annually," he said.
In addition to subsidy in natural gas pricing, ONGC bears several other subsidies like payment of cess and royalty on the share of production of other partners in respect of pre-NELP exploration blocks and under-recoveries of past costs incurred by ONGC on its discovered fields subsequently given to private firms, Raha said requesting withdrawal of subsidy-sharing scheme.