PSU oil marketing companies' subsidy burden may fall to Rs 28,000-34,000 crore in FY16: ICRA

MUMBAI: The subsidy burden on the public sector upstream firms is likely to drop to Rs 28,000-34,000 crore by FY16, with the gross under recoveries (GURs) expected to decline to Rs 56,000 crore then, rating agency ICRA Research said in a report.
As per ICRA's estimates, the subsidy burden on PSU upstream companies is expected to decrease to Rs 28,000-34,000 crore by FY16 as the overall GURs are projected to decline to Rs 56,000 crore during the year at crude oil price of $70 per barrel considering Rs 63 a dollar.

The rating agency had projected the GURs of state-run oil marketing companies to decrease to around Rs 100,000 crore for FY15 from Rs 139,900 crore for FY14, considering average crude oil price of $108 per barrel and Rs 59.5 a dollar.

The fall in under-recoveries is, however, likely to be sharper to around Rs 80,000 crore for FY15 with crude oil at $70 per barrel Rs 62 a dollar for the second half of this fiscal.

"The fall in under-recoveries in April-September of FY15 to Rs 51,100 crore from Rs 60,900 crore a year ago, has not helped the upstream companies as the Centre has retained large part of benefits of lower gross under-recoveries.

"The burden on PSU upstream companies like ONGC and OIL continued to be fixed at around $56 per barrel of crude production. Besides, high subsidy burden with lower gross realisation has impacted their profitability in the second quarter of FY15," said K Ravichandran, Senior Vice-President and Co-Head, Corporate Ratings, ICRA.

Unless the sharing formula is revised, the softened crude oil prices would significantly impact the net realisation and profitability of ONGC and OIL in Q3 FY15, he said.

"We expect the GoI to revise the sharing formula and the discount burden to decrease materially in H2 FY15 so as to help the PSU upstream companies to achieve reasonable profits," Ravichandran said.

The GURs of OMCs are likely to reduce further with the implementation of modified direct benefit transfer scheme for LPG, the report said.

Currently, the scheme has been implemented in 54 districts from November 15 and for the rest of the country, it will be applicable from January 1 next year.

With the scheme, the OMCs would be allowed to sell domestic LPG at market price while the subsidy will be directly transferred to the accounts of custome.