Simpler subsidy maths to jazz up ONGC, IOC floats
30 Oct 10 10:23 AM
ET
NEW DELHI: India’s largest share sale-Indian Oil Corp’s (IOC) Rs 19,000-crore issue-as well as Oil & Natural Gas Corp’s (ONGC) offering next year will get a shot in the arm as the government is preparing to make its ad hoc subsidy-sharing scheme more systematic and transparent, making the blue-chip energy firms more attractive for institutional investors.
ONGC and Oil India, which gain when crude prices rise, are asked to share the subsidy burden of oil marketing firms such as IOC when fuel prices are not increased in step with rising crude oil prices to keep inflation under control.
But the government’s decision on the extent to which upstream firms share the losses in fuel retailing can be unpredictable and opaque, making large equity investors edgy as they are unable to get a grip of the companies’ earnings outlook.
The new system would have a clear formula to assess how much subsidy burden ONGC would have to bear unlike the current arrangement in which the company or equity analysts tracking its shares have no idea how much subsidy would be paid, and the government’s own cash subsidy is decided in discussions between the finance and oil ministries.
Government officials say the finance ministry has proposed that the extent to which refiners are compensated for selling fuel at low rates should be calculated on the basis of refining costs, not the current “trade parity” system in which retailing revenue losses, called under-recoveries, are calculated on the basis of international prices of fuels as well as the freight rates and Customs duties a retailer would pay if he imported the fuel instead of buying it locally.