Government to get Rs 14,900 crore from PSU oil companies on gas price hike

NEW DELHI: Government will get an additional Rs 14,900 crore by way of royalties and taxes on the incremental gas price accruing to state-owned producers ONGC and Oil India in 2014-15 fiscal, Goldman Sachs has said.


The additional revenue will be more than Rs 14,600 crore incremental fertiliser subsidy the government will have to bear on account of doubling of natural gas price to USD 8.4 per million British thermal unit from April 1, 2014, it said in a report.

"We note about 65 per cent of incremental gas revenue from a price hike would flow back to the central and state governments as royalties, VAT, taxes and dividend, and calculate this amount to be Rs 14,900 crore in FY15," it said. "This would be higher than the incremental fertiliser subsidy of Rs 14,600 crore."

Of the gross incremental gas price of USD 4.70 (after including VAT), 50 cents would go towards payment of 12 per cent VAT and other 38 cents in royalties to the Central government.

Net incremental gas price to ONGC/OIL after payment of VAT and royalty would be USD 3.82, it said adding of the remaining USD 1.30 would go towards corporate tax and another USD 1 in dividend payments.

After considering 17 cents of dividend distribution tax, the net incremental accrual to ONGC/OIL would be USD 1.34 per mmBtu, it said.

Goldman said gas price realisation for ONGC/OIL will reduce to USD 6-7 per mmBtu in case the government asks them to subsidise fertiliser production. USD 6-7 price is needed for ONGC's deep water/marginal fields to be viable.

In such a scenario, the extra government revenues could be used to support gas-based power plants, where electricity generation cost will go up with rise in gas price.

The government on June 27 approved pricing of domestic gas at an average cost of imported LNG into India and global gas hub prices from April 1, 2014 which would double the rate of USD 4.2 per million British thermal unit.

Under the pricing formula approved, the price of liquefied natural gas (LNG) imports by India under long-term contracts would have 50 per cent weight. The weight for US Henry Hub will be at 22 per cent, UK's NBP price at 26 per cent and for well head price of Japan's LNG imports at 3 per cent.

Gas price would be revised quarterly with a lag of one quarter. Thus, gas price under the new regime in April-June 2014 would be based on underlying gas prices in calendar 2013.