Lower-than-expected provision for fuel subsidies in the Budget for 2018-19 raises the possibility of putting the burden back on state-run oil explorers if crude price stays above $55 a barrel.
The provision of Rs 21,800 crore in 2017-18 and Rs 20,800 crore in the next financial year as subsidy for under-recoveries on cooking fuels, including the Direct Benefit Transfer on LPG, is lower than the estimates of Rs 25,900 crore and Rs 30,000 crore based on global crude prices of $57.5 a barrel and $60, respectively, in the given period, according to a report by Kotak Institutional Equities. The shortfall raises concern on the possibility of subsidy sharing with the upstream companies in the fourth quarter ended March and the financial year starting April, as was the case till September 2015 when global crude prices averaged above $57 a barrel, the report said.
Shares of Oil and Natural Gas Corporation Ltd. declined more than 10 percent in the last seven straight sessions. Oil India Ltd. stock fell nearly 12 percent in six sessions. The explorers used to share the subsidy burden with the government to keep oil prices low for consumers. That’s because the upstream companies gained from high crude prices. The practice stopped after auto fuels—petrol and diesel—were deregulated and pegged to market rates a little over two years ago. The subsidy continued on kerosene and LPG but was reduced in phases.