Indian sugar mills association

Finmin reviews oil subsidy formula

Date:	17 Jan 2012

Source:	The Times of India

Reporter:	Sidhartha

News ID:	852

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NEW DELHI: The finance ministry is taking a fresh look at the oil subsidy formula at a time when the government is facing a tough fiscal situation.

Sources told TOI that North Block has raised questions over the methodology adopted by oil marketing companies to calculate what they term as under-recoveries, which is the difference between the trade parity price and the price at which a fuel is sold by them. The review comes barely a year after the expenditure department had forced the oil ministry to get the numbers audited by the government`s cost audit branch.

Oil ministry officials, however, said there was nothing amiss with the numbers and they had been certified by the cost audit branch. "In fact, the numbers only showed that we should have got a little more," said an official. In addition, officials said, the mechanism was approved by the Cabinet and the government had followed it for several years.

According to the latest data released by the government on Monday, under-recoveries of oil marketing companies during the first half of the financial year were estimated at Rs 64,900 crore. For the full fiscal year, the number is expected to exceed Rs 1.3 lakh crore with the government expected to take over a third of the burden.

Finance ministry is questioning the current methodology which is focused on a product-wise approach. An official said the entire refinery should be looked at. "There are products such as naphtha, which is a free product, but the finance ministry suspects that even this is loaded to the under-recoveries," said an official.

In addition, North Block has raised queries related to the refinery margin of public sector oil marketing companies. The issues, sources said, had been discussed with officials in the petroleum ministry and the finance ministry is looking at it at the highest level.

The review comes at a time when the government is grappling with a tight cash situation and is facing the prospect of missing the fiscal deficit target for the current financial year. Against the budget target of 4.6% of GDP, the Centre may close the year with a fiscal deficit of around 5.2% of GDP on account of a surge in subsidies - food, fuel and fertilizer - and new spending commitments.

So far, the government has only managed to generate Rs 1,100 crore through disinvestment of its stake in public sector companies, compared to the Rs 40,000 crore target that it had set for itself. Similarly, the government is unlikely to raise Rs 13,000 crore through fresh spectrum auction.

Despite looking at savings of around Rs 30,000 crore in plan spending, it is looking at several sources, such as higher dividend from public sector companies, to meet the deficit target.

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