The report also quoted people aware of the matter saying that the prices of natural gas, which are decided by the government, are fixed at too low a rate.
India’s attempts to sell a $1.6 billion stake in Oil and Natural Gas Corporation (ONGC) may hit a roadblock as there are fears the government may reimpose fuel subsidies even as the natural gas prices set by the state are already low. These factors could negatively reflect on ONGC's share price, according to a report from Bloomberg Quint.
Before June 2010, when the government freed up the retail prices of petrol, the upstream major would share a portion of the subsidy burden. It would sell crude at discounted rates to refiners to compensate them for the loss in revenue when crude prices inched up.
While diesel was also deregulated in October 2014, the government continues to control prices of kerosene and liquefied petroleum gas.
Rising crude prices and a falling rupee are currently straining the government’s subsidy budget. In its annual report for the year ended March ONGC noted, “For state upstream companies like ONGC, the perpetual uncertainty pertaining to subsidy-sharing” resurfaces during periods of high crude prices.
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ONGC also pointed out there are “significant” losses due to low domestic gas prices, which are below the company’s cost of production.
Recent payouts of a dividend, the Bloomberg Quint report noted, along with buying a majority stake in Hindustan Petroleum Corporation (HPCL) at the beginning of the year, has already significantly depleted ONGC's cash reserves.
The report also noted the recent trajectory of fuel prices leading to speculations of political influence. Despite a continuous rise in crude prices, retail fuel prices stayed put for nearly three straight weeks at the beginning of the year ahead of elections in a southern state of the country, it highlighted.