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Upstream Oil Cos To Pay 40% Of Fuel Subsidy

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Upstream oil companies gained on Tuesday after the government said they'll have to bear nearly 40 per cent of the Rs 1.38 trillion cost of retail fuel subsidies for the 2011-12 year.

CLSA says the burden on companies is less than its estimates for 45 per cent, calling it "positive", though warning this proportion is liable to change, driving "earnings uncertainty for upstream as well as downstream SOEs."

Brokerage says GAIL and ONGC are the biggest beneficiaries. CLSA upgrades GAIL to "outperform" from "underperform" citing a sharp fall in its stock in recent months.

GAIL shares were up 1.4 per cent and ONGC was up 1.6 per cent.

Oil and Natural Gas Corp (ONGC), Oil India Ltd and GAIL (India) sell refined products and crude oil to state fuel retailers at a discount. Government also provides a cash subsidy to cover some of their losses.

State-run upstream firms will give a total discount of about Rs 55,000 crore to Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp, the source said.

The subsidy payout and additional compensation from government would allow the fuel retailers to post profits for the January to March quarter, said the source, who was not authorised to speak to media.

The union government fixes the retail prices of cooking gas, kerosene and diesel to help the poor and keep inflation in check.

For 2011-12, ONGC's subsidy payout will be fixed at about Rs 44,500 crore, up 79 per cent from a year ago, while OIL's share has more than doubled to Rs 7,400 crore from Rs 3,300 crore in 2010-11, he said.

The subsidy payout by GAIL for the last fiscal year to the end of March will rise by about 51 per cent to about Rs 3,200 crore against Rs 2100 crore of 2010-11.

Of the Rs 55,000 crore provided by the upstream industry, IOC's share will be Rs 30,000 crore, HPCL's Rs 12,100 crore while BPCL will get about Rs 13,000 crore.

India's finance ministry has also agreed to give an extra Rs 38,500 crore cash subsidy to partly cover revenue losses of state fuel retailers in the January-March quarter, taking the overall compensation to Rs 83,500 crore for 2011-12.

From the additional government cash compensation of Rs 38,500 crore, IOC will get about Rs 20,900 crore, BPCL's share is about Rs 9,200 crore while HPCL will get about Rs 8,500 crore.

(Reuters)