Downstream oil PSUs in acute distress: RS Sharma

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Downstream oil PSUs in acute distress: RS Sharma

RS Sharma, Chairman, ONGC, says the subsidy problem needs a dynamic approach. "The thought process is now moving along dynamic lines."

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Prime Minister Manmohan Singh met Petroleum Minister Murli Deora and the chiefs of oil public sector undertakings yesterday to take stock of the financial health of PSU oil companies. The Oil Minister is expected to meet Finance Minister Pranab Mukherjee today on fuel pricing and oil bonds.

The meet holds significance as crude continues to hover above the USD 80 per barrel mark. State-run downstream oil marketing companies have sought Rs 20,000 crore as compensation. As against that, CNBC-TV18 reports, quoting PTI, that the ministry is seeking Rs 30,000 crore by way of oil bonds.

The issue of fuel price subsidy is a contentious one in India. Oil marketing companies (OMCs) in India do not have a free pricing mechanism in which prices of fuels like LPG, kerosene, petrol and diesel are decided on the basis of international crude oil costs. Instead, India follows a subsidized fuel pricing mechanism in which these fuels are sold by state-run oil marketing companies at a fixed rate even if international prices of crude go up. As a result, many OMCs sustain losses when selling prices are even lower than production cost.

To compensate for this loss, the government issues oil bonds, but this year, the Finance Ministry had deferred issuing oil bonds to OMCs in the third quarter. In fact, reports had suggested that the Ministry of Finance was in favour of scrapping the practice of issuing oil bonds altogether, leaving OMCs in despair.

Commenting on the same, RS Sharma, Chairman, ONGC , says the subsidy problem needs a dynamic approach. "The thought process is now moving along dynamic lines."

On yesterday's meeting, he says macro level issues were discussed. "Concerns of minority shareholders came up in yesterday's meeting." He stated that downstream oil marketing companies are currently under acute distress.

According to him, shareholders of both upstream, downstream companies need clarity. "We hope ONGC's minority shareholders will not be marginalised."