FY12 subsidy burden may rise above 40%

A fuel price hike post Parliament session is inevitable. The finance minister has also made it clear in this budget session. The FM, in last one week, has reiterated that some action needs to be taken as far as fuel subsidy bill is concerned.

The FM proposed a three pronged action, one was duty cuts by the states, second, duty cuts by the Centre and third the consumers taking on part of that burden, reports Nayantara Rai of CNBC-TV18.

Also Read: ONGC's FY12 subsidy burden seen at Rs 45,000cr: Sources

Petrol prices have not gone up since December 2011. The oil marketing companies have been trying to put pressure to increase petrol prices, but due to political conditions they have not been allowed to do so. So, that's pretty inevitable that is going to happen after this Parliament session, by how much is a big question.

Currently, OMCs are losing nearly Rs 8 a litre. Political conditions may not allow the OMCs to raise the amount to same extent but we can expect a partial hike of Rs 5 a litre plus in petrol price.

Last time the prices of diesel, LPG and Kerosene was hiked on 24 June 2011, so this time we can expect the price hike by May end or June. Subsidy burden in FY12 stood at Rs 1,38, 541 crore. On Friday, CNBC-TV18 reported that the finance ministry had agreed to give Rs 38,500 crore in fourth quarter as subsidy.

This means, the government had agreed to give the oil marketing companies Rs 83,500 crore in cash, out of  Rs 1,38,000 crore for FY12, which leaves a gap of Rs 55,000 crore.

The question is, will that entire Rs 55,000 crore be taken on by the upstream companies? So far they have paid about Rs 38,000 crore, but even if they pay the entire Rs 55,000 crore it turns out to be around 40%.

The street at some point was expecting that the upstream burden would be as high as 42-43%. For example, company like ONGC which will be declaring results on the 29 May, has still has not received the letter from the Centre, on how much the Centre will be contributing that has still not been finalized by the oil ministry.

A small area of ambiguity which the oil marketing companies and the upstream companies are nervous about is petrol is a deregulated commodity. They have not been allowed to increase prices and therefore, the companies have lost nearly Rs 4,800 crore in FY12.

The Centre and the finance ministry have said "nothing doing, we are not compensating you" so who is going to compensate the companies for that? Will that have to be absorbed in entirety by the downstream companies or will the upstream companies have to contribute a little bit towards that in that case perhaps that FY12 subsidy burden could then go above 40%.

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