With the Centre developing cold feet on increasing diesel prices, the finance ministry may give in to the petroleum ministry demand for increasing the government's share in petroleum subsidy.The government is clearly caught in a pincer grip: it cannot hike diesel rates with food inflation touching a 10-week high, nor can it ask FPO-bound Oil & Natural Gas Corporation to bear a higher share of subsidy.
The increase in the government's subsidy bill could put the fisc under stress, since the government underestimated the petroleum subsidy in February.
It provided for only Rs 3,108 crore (Rs 31.08 billion) for the current year in the Budget, but was forced to provide an additional Rs 14,000 crore (Rs 140 billion) on this account in the second supplementary demand.
Though it draws comfort from the Rs 106,317-crore (Rs 1,063.17 billion) windfall from the auction of 3G and BWA spectrum, it has already spent Rs 74,401 crore (Rs 744.01 billion) more than the budgeted amount for 2010-11.
Senior officials said Finance Minister Pranab Mukherjee cancelled Thursday's meeting of an empowered group of ministers on fuel prices.
He instead held a meeting with Petroleum Secretary S Sundareshan, who briefed him on the mounting burden of oil marketing companies.
Mukherjee had earlier written to Petroleum Minister Murli Deora, assuring him that the government would share one third of the under-recoveries incurred by OMCs in selling diesel, LPG and kerosene below the
market rates.
"The ministry of finance's share in the subsidy burden will be more than one third. Upstream companies (ONGC, Oil India and GAIL) will not share more than 33 per cent of the under-recovery," Sundareshan told reporters on Thursday.
Though the additional amount would show in the government's current year account, the three OMCs had accounted for it in their books last year.
Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are now estimated to incur a revenue loss of Rs 70,000 crore (Rs 700 billion), if the benchmark Indian basket of crude oil continues to rule at around $90 a barrel in the January-March quarter.
"There is a complete understanding between the ministries of finance and petroleum, as in the past, that the under-recoveries of OMCs will be adequately and fully compensated by upstream companies and the government, and a small portion, if possible by OMCs," said the petroleum secretary.
High oil prices have also thrown a spanner in the government's disinvestment roadmap.
With Indian Oil Corporation's issue already postponed, ONGC's follow-on issue is now crucial for the Centre's Rs 40,000-crore (Rs 400-billion) disinvestment target for 2010-11.
