Government sources have indicated that the Finance Minister has promised a decision on subsidy sharing in a day or two.
The oil ministry is hopeful that whatever the finance ministry is going to communicate in a day or two will not just entail a decision for Q4 of this fiscal but also the road ahead and what the subsidy sharing mechanism could be in FY16, but obviously only north block decides on a new formula for the next fiscal.
If you look at Q4, the Indian crude basket has averaged at around USD 54 per barrel. The oil ministry doesn’t believe that there is any room for Oil and Natural Gas Corporation (ONGC) and other upstream companies to make any payment towards under-recoveries in Q4.
In the first nine months, we have seen ONGC's net realisation around USD 41 per barrel. If they don’t pay any discount then realisations stand at around USD 44 per barrel. The expectation is that maybe north block will excuse the upstream companies or certainly decide on the quantum.
Also, irrespective of whether ONGC pays subsidy or not, its earnings are likely to decline due to international crude prices. Value added business naphtha, etc., are also likely to see earnings decline.
It has 30 percent participatory interest in Cairn’s Rajasthan block, which may also see earnings decline. Hence all eyes are on north block and its decision. It has exhausted the FY15 Budget of compensation, which was at Rs 38,000 crore in FY16. Are they going to be using some of that for Q4 is a big question.
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