The ministry of petroleum and natural gas has written to the finance ministry, seeking additional Rs 330 billion over and above the Rs.248.33 billion petroleum subsidy allocated as a revised estimate for 2018-19. The extra demand is primarily because the government did not clear subsidy payments worth Rs. 339 billion for liquefied petroleum gas (LPG) and kerosene in 2018-19, which affected the net profits of oil marketing companies and increased their debt. “The additional amount has been asked to meet the outstanding from the previous year,” a source said.
In the Interim Budget, Rs. 374.78 billion has been allocated as petroleum subsidy for 2019-20 which may be just enough to meet the requirement for the current financial year (if oil prices spiral due to US-Iran stand-off, this may turn out to be insufficient also). So, the new demand from the oil ministry would indeed pressure the government which is under a fiscal stress. Though rolling over of a part of fuel subsidy has been a custom, building a bill of huge arrears would reflect negatively on the fiscal rectitude and rating agencies could take note of it.
At the end of March 2019, the government was yet to pay Rs. 190 billion to Indian Oil on account of cooking gas and kerosene subsidy for 2018-19. The comparable figure for previous year was Rs. 9 billion. Hindustan Petroleum Corporation’s unpaid fuel subsidy bill for 2018-19 was Rs 80 billion and a similar amount was due to Bharat Petroleum Corporation. High dues have meant that the OMCs, which have capital expenditure plans and are also investing to upgrade refineries to BS VI standard, have run up debt and interest payout.
“Naturally, these high costs affect finances,” said an OMC executive requesting not to be named. The total debt of the three OMCs rose 30% to Rs. 1620 billion in 2018-19, which was a five-year high. Research firm Jefferies, too, in a recent report noted: “FY20 may be a soft year for India’s OMCs, therefore, especially if the International Maritime Organization (IMO) uplift proves illusory with cash flow also under strain from subsidy dues and rising capital spends.”
IMO’s new norms to be applicable by end of 2019 for sulphur content used by ships is expected to improve gross refining margins of refiners. The additional demand by the petroleum ministry is despite the North Block clearing some arrears in the first three months of this fiscal. For instance, the dues to Indian Oil have come down to around Rs 140 billion as Rs 50 billion has been paid.
