Sharing The Burden

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[PRECIOUS DROP: Easing of oil prices has brought down the under-recoveries of oil marketing companies (AP) The recent cooling of oil prices to levels of $80 per barrel is perhaps getting oil marketing companies such as BPCL, HPCL and IOC excited. When the government worked out the &lsquo;under-recovery&rsquo; sharing mechanism for the financial year 2008-09, the amount arrived at was about Rs 2,45,000 crore. The figure was arrived at based on the assumption of average oil price of $125 per barrel. But since then, oil prices have corrected 35 per cent. The big question is: who would benefit if oil prices were to remain lower for the rest of the year? The government, downstream oil marketing firms or upstream firms such as ONGC, OIL and Gail since these are the entities that share the subsidy burden among themselves? It is likely to be the government since a gap of about Rs 43,390 crore was anyway left unaccounted for. Out of the government&rsquo;s share of Rs 1,37,990 crore, Rs 94,600 crore of oil bonds are to be issued. The rest of the amount comprises the unaccounted for portion &mdash; which the government is yet to decide on how to disburse. Quick estimates show that if the oil prices were to average at $90 per barrel for the financial year 2008-09, the overall under-recovery amount falls by Rs 68,600 crore. But then, the rupee has also depreciated 13 per cent since June 2008 levels, which could inflate import bills. India imports 80 per cent of its crude oil requirements. Therefore, adjusted for rupee-dollar price movements, the situation looks better only by Rs 45,000 crore. This is more or less the amount that is the shortfall, which the government is yet to decide on. (Businessworld Issue 21-27 Oct 2008)