Oil on the boil: Fuel subsidy may hit Rs 530 billion, says Moody's

New Delhi: Global credit rating agency Moody’s Investors Service on Tuesday cautioned that with the rise in oil prices, the chances of the government urging upstream companies such as Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) to share the burden of fuel subsidies were increasing. 

The Moody’s report said fuel subsidies could total Rs 350 and 530 billion during 2018-19 if crude oil prices swing between $60-$80 a barrel, the highest in the past three years. This, at a time, when the Centre had budgeted only Rs 250 billion for the financial year.

“Because of the government’s widening fiscal deficit, ONGC and OIL could be asked to bear part of the Centre’s fuel subsidy for oil, if prices stay above $60 a barrel for the fiscal year ended March 2019," said Vikas Halan, a senior vice-president at Moody’s. 

The agency said the two companies had not contributed to fuel subsidies since June 2015. But, before this they used to pay over 40 per cent of the country’s annual subsidy bill. “The net impact of the subsidy sharing will be manageable for ONGC and OIL even if the two companies are required to pay the entire deficit amount between the budgeted and actual figures for the financial year ended March 2019,” added Halan. 

The report added that if ONGC and OIL paid part of the subsidy bill, their net realised prices would be constrained to $52-56 per barrel — marginally lower than or equal to the $56-per barrel price in financial year 2018. 

The Moody’s report stated that oil-marketing companies such as Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation had been asked to share less than 1per cent of the fuel subsidy since 2011-12. This proportion of cost sharing is unlikely to rise. 

On price deregulation, Moody’s said the Centre was unlikely to reverse fuel pricing deregulation because it remained committed to reforms. Most petroleum products are sold at market prices in India, except liquefied petroleum gas and kerosene.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel