Indian explorers face $2.5bn subsidy bill

Payment pressure: Indian upstream companies face fuel subsidy bill

India's state-owned upstream companies face making a total payout of $2.5 billion for the quarter ending 30 June in fuel subsidy support to national oil marketing companies.

State-owned major Oil & Natural Gas Corporation (ONGC) is set to pay the bulk of the subsidy bill at a total of $2.19 billion, while Oil India would end up paying close to $310 million, according to estimates reported by the Press Trust of India.

The subsidy payout for oil marketing companies is fixed by the Indian Petroleum Ministry and varies every financial quarter. 

National upstream companies in India like ONGC and Oil India (OIL) share a major portion of India's subsidy on retail prices of petroleum products like diesel, kerosene and liquefied petroleum gas (LPG).

Analysts believe that unrealistic subsidy payouts, which are even unpredictable in nature, are taking a toll on the fiscal health of Indian state-owned upstream giants.

During financial year 2013-2014 (1 April 2013 – 31 March 2014) alone, ONGC paid a whopping $9.4 billion to the Indian government as its share of the subsidy burden.

Oil marketing companies in India including Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) are the direct beneficiaries of the subsidy payouts by Indian upstream majors.

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