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ONGC, OIL subsidy likely to continue

Our Bureau

NEW DELHI, Sept. 18

IN a bid to contain the burgeoning oil pool deficit, the Government is unlikely to correct the underpricing of crude sold by the Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) to the public sector refining companies, according to top Gove rnment officials.

Currently, ONGC and OIL are remunerated a fixed amount of Rs 8,850 per tonne of crude amounting to $12-13 per barrel from the oil pool account which is an intermediary between the oil producer and the refining companies.

The compensation is well below 80 per cent of the international price as approved by the Cabinet. The underpricing of crude results in an implicit subsidy of Rs 7,000 crore and Rs 700 crore to the oil pool account by ONGC and OIL respectively.

While ONGC annually produces around 25 million tonnes of crude, OIL's output is around 2.5 million tonnes per annum.

According to officials, the cost of average production of crude for ONGC is around $7-8 per barrel. Factoring in a cess of $3 per barrel and royalty of $ 2.75 per barrel, the final price is below the $16-17 per barrel band allowed by the Government at th e prevailing crude prices.

The oil pool deficit stands at around Rs 9,000 crore and is rising at an alarming pace owing to the hardening of crude prices in the international markets.

Last week, the Petroleum Minister, Mr Ram Naik, announced that a cut in duties and a hike in prices of petro-products were on the cards following the return of the Prime Minister, Mr A.B. Vajpayee, from his trip to the US.

At a crude price of $30 per barrel, the subsidy on LPG is Rs 160 per cylinder,on diesel Rs 3 per litre, on kerosene Rs 5-6 per litre and a nominal amount on aviation turbine fuel.