India’s primary oil producer, the Oil & Natural Gas Corporation (ONGC), is about to get it in the neck once again. According to news reports, the government is planning to increase the company’s subsidy burden in order to avoid taking a more direct hit on budgetary finances.
Under the formula worked out earlier, ONGC and other oil and gas producers (Gas Authority of India Ltd and Oil India Ltd) have to offer “discounts” (i.e. subsidies) to oil marketing companies (Indian Oil, BPCL and HPCL) up to 33.3 percent of their losses on diesel, cooking gas and kerosene sales. Now, the government apparently wants to raise the subsidy amount to Rs 30,000 crore this year, which works out to 38.5 percent, though there is no official confirmation of this move.
While the ONGC share is obviously tanking on this news, the move raises serious concerns about corporate governance at ONGC. The government wears two hats when it comes to ONGC. As a policymaker, it can direct ONGC to subsidise whomsoever it wants to in public interest. But ONGC is not fully owned by the government: 26 percent of its shareholders are ordinary and institutional investors, whose interests cannot be sacrificed at the whims of the majority shareholder. The same holds for GAIL and OIL, both of which are publicly-listed companies.
Under the formula worked out earlier, ONGC and other oil and gas producers (Gas Authority of India Ltd and Oil India Ltd) have to offer “discounts” (i.e. subsidies) to oil marketing companies (Indian Oil, BPCL and HPCL) up to 33.3 percent of their losses on diesel, cooking gas and kerosene sales. Now, the government apparently wants to raise the subsidy amount to Rs 30,000 crore this year, which works out to 38.5 percent, though there is no official confirmation of this move.
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