Budgeting FY14 subsidy at $56/bbl: Oil India

State-run oil exploration firm Oil India expects a more predictable subsidy sharing mechanism, so that it can plan capex accordingly.

In an interview with CNBC-TV18, Sunil Kumar Srivastava, chairman and managing director, OIL India said that he expects subsidy burden to come down in coming years and for this year it would be around USD 56/bbl.
The firm expects subsidy mechanism to be more predictable so that investors know what kind of price realization upstream companies can get.
Industry players have appealed to the ministry of petroleum and finance to look into the matter.
The upstream firm along with peers has to partly compensate oil companies for selling petroleum products at government-controlled rates. Also read: ONGC upgraded to 'Neutral' on subsidy gains: Credit Suisse Below is the verbatim transcript of his interview to CNBC-TV18 Q: In Q4 there was a 5 percent dip quarter-on-quarter (Q-o-Q) in volumes, though you made up for that through realizations, was that a one of and will volumes stabilise now going forward? A: In the last financial year, we had faced a lot of environmental problems in our area. In the whole year of 365 days, we had as many as 290 incidents of blockage and disruptions. Most of these things have been beyond the control of Oil India Ltd (OIL). So, we have taken up this matter with the highest level. We hope that in the current year, we should look up about the production. Q: Any kind of guidance that you could give us for FY14 production? A: Our production target is 3.95 and we are quite hopeful that with the initiatives which we have taken and also very productively we have taken up with the state government that we will be able to made this 3.95 million metric tonne. Q: Have you had any discussion with the ministry and told to keep aside a certain portion as part of subsidy burden for FY14? How will you be budgeting for it going forward? A: I would say some of the initiatives which the government has taken in the recent past particularly keeping the number of liquefied petroleum gas (LPG) cylinders and liberalization of petrol prices, we hope that in the coming years, the subsidy burden should come down. In fact we have been continuously talking to ministry of petroleum and finance so that we should have some kind of predictable mechanism for subsidy. We also need a lot of cash as we have ambitious plans for coming future. Some of our new exploration licensing policy (NELP) blocks will be coming into drilling in the current as well as future years, once we discover oil and gas. We will need a lot of capex. So, we have been continuously requesting both the ministry of petroleum as well as ministry of finance to have a generous look on the subsidy issue. Q: Is there a possibility that in FY14 with total subsidy burden coming down quite significantly, the government may come out and say that let me take care of the fiscal deficit and while upstream will share overall subsidy burden in terms of absolute number, the percentage may not be 37 percent as was the case in FY13, it could be 60-70 percent because the overall burden will be much lower? A: As of now we have no such indication. So, we will just wait and watch how government takes a call on the subsidy issue. Q: What has been the communication from the government so far on FY14 subsidy burden then? A: On the current financial year, there is no such guidance. As we believe that we will continue as of now that USD 56 per barrel, but we are very hopeful with the capping up of the LPG cylinder.