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With the government dithering over raising the price of subsidised fuels, its biggest company, Oil and Natural Gas Corporation (ONGC), fears its surplus will be wiped out in the next two years at the current $8-a-barrel margin.
The company, which has taken a Rs 97,000 crore hit on net profit in the last eight years on account of subsidy payout, says almost half of its Rs 28,000-crore surplus is earmarked for annuity payments for employees and site restoration activity. “As on date, Rs 9,200 crore is in the Site Restoration Fund (before abandoning a field). This can’t be used anywhere else. With another Rs 3,500 crore, we have to buy annuity for our employees on leave and other benefits. What is left is only half of Rs 28,000 crore and this can get wiped out in less than two years at current margins of $8,” Chairman and Managing Director Sudhir Vasudeva told Business Standard.
Against a net profit of Rs 25,122 crore last year, ONGC has a capital expenditure outlay of Rs 33,000 crore for the current year. “We cannot generate this with the existing margins, implying we will have to dip into our surplus and reserves,” said Vasudeva. Experts, however, believe ONGC being a cash cow, the government will not allow a situation where it runs out of cash. “However, if it happens, it will have widespread ramifications for the government, its fiscal deficit and the disinvestment programme,” said Jagannadham Thunuguntla, head of research, SMC Global Securities.
Being a government-owned company, ONGC is made to share around 32 per cent of the subsidy that the government oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — incur on sale of diesel, kerosene and domestic cooking gas due to government-controlled prices. In 2011-12, it gave discounts of Rs 44,466 crore on crude oil sales to the three companies to make up for its share of 32 per cent. This pulled down its net realisation on every barrel of crude oil to $54.71, even as its gross realisation was $117.40.
Prices of the three subsidised products were last revised in June 2011, though international prices kept rising and the rupee continued to weaken against the dollar, making crude oil import even costlier. The three companies incur a combined daily under-recovery or revenue loss of Rs 402 crore on these three products. Vasudeva said it made eminent sense to increase prices of petroleum products.