NEW DELHI: India plans to reform rules governing the level of discounts upstream state oil firms including ONGC offer to retailers, a senior finance ministry official said on Friday, a move that could expedite the sale of a stake in the company.
The government hopes to sell shares in ONGC and India Oil Corp. to raise about a third of its budget target for asset sales of $11 billion – and reduce its fiscal deficit to 3.9 percent of GDP in the 2015/16 fiscal year.
Currently ONGC (Oil and Natural Gas Corp), Oil India and GAIL (India) sell crude and fuels like cooking gas at discounted rates to partly compensate retailers for losses they incur on selling fuels at government-set rates.
But the finance ministry and oil ministry are in talks to work out a mechanism for easing the subsidy burden for the upstream companies, Ratan P. Watal, expenditure secretary at the Ministry of Finance, told reporters on Friday.
Earlier, sources told Reuters that the oil ministry had set a new subsidy formula for the April-June quarter that would exempt upstream companies from discounting sales of crude oil and refined products if global oil prices are up to $60 per barrel.
India had to defer plans to sell a 5 percent stake in state-run oil company ONGC last year as investors wanted a clarity on subsidy payments, which had previously been set by government decree, creating uncertainty around its earnings outlook.
Market experts said that if talks between the two ministries lead to the temporary subsidy arrangement being prolonged, that would make the ONGC stake sale a more bankable proposition.
“Investors have been asking for more clarity on ONGC’s subsidy outgo, and that will be key for a divestment to take place,” said Mahesh Patil, co-chief investment officer at Birla Sun Life Asset Management.
“We still need to see what the final formula is.”
