Upstream oil companies to bear oil subsidy burden of Rs. 4299 crore

Upstream oil companies to bear oil subsidy burden
Upstream oil marketing companies- ONGC, OIL and GAIL- will have to bear additional subsidy burden of Rs. 4,299 crore for the financial year 2010-11.

This additional burden is in the form of discounts to OMCs. ONGC will bear additional financial burden of Rs. 24,892 crore for year 2010-11, Rs. 3293 crore higher than the estimated subsidy burden. OIL will have to give discounts worth Rs 3,293 crore while the burden of GAIL will be Rs 2,111 crore.

Indian govt. has directed the upstream oil companies to bear 39 per cent of total oil subsidies up from the last 33 per cent. The total subsidy stands at Rs. 30,296 crore for fiscal year ending March 2011.

The OMCs will suffer loss of Rs. 6951 crore in spite of the increased subsidy burden on upstream oil companies. The petrol deregulation has helped the oil companies to certain extent but the subsidy burden due to diesel and LPG is putting pressure on companies to maintain profitability.

The Indian government has paid Rs 40,912 crore, or over half the loss incurred by selling petroleum products and LPG at subsidized prices, to the marketing companies.

This additional subsidy burden will lead to Rs. 2000 crore fall in net profit. This may jeopardize the follow on public offer in July. The market capitalization of the company has fallen by 10 per cent within one week.

Read more about: oil and gas, ongc, oil, gail, bse
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