Budget 2018: Petroleum Subsidy Could Fall Short; Upstream Firms May Have To Bear Burden


Budget 2018: Petroleum Subsidy Could Fall Short; Upstream Firms May Have To Bear Burden

The Budget 2018allocation of Rs 24,933 crore for petroleum subsidy may fall short considering the appreciation in crude oil prices and revised target of providing 8 crore Liquified Petroleum Gas (LPG) connections under Pradhan Mantri Ujjwala Yojana (PMUY), experts say. The subsidy allocation is a mere 2 per cent increase over the Revised Estimate of Rs 24,460 crore last financial year.

State-owned upstream companies Oil and Natrual Gas Corporation (ONGC) and Oil India Ltd (OIL) may have to bear the shortfall in subsidy as per the present under-recovery mechanism, according to credit rating agency ICRA and equity research firm Kotak Institutional Equity.

“Petroleum subsidy revised estimate of over Rs 222 billion (excluding new LPG connections) for FY2018 is lower than the expected burden of Rs 258 billion in the current year, which may not impact the companies considering the over-allocation for FY2017. However, the petroleum subsidy allocation of Rs 217 billion for FY2019 would materially fall short by Rs 110-120 billion,” an ICRA report said. It expects the government’s petroleum subsidy to be around Rs 330-340 billion with gross under-recoveries projected to around Rs 400 billion considering crude oil prices at $70 per barrel and with an exchange rate of Rs 65 per dollar. Read More…

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