Mumbai: State-owned Oil and Natural Gas Corp. Ltd, or ONGC, may not be able to invest the Rs76,000 crore it had planned to, in the five years to 2012, because of a rule governing the functioning of state-owned firms such as the oil explorer and producer.
According to this rule, even a public sector company that is large, profitable and has been granted a certain level of autonomy in management—such firms are usually called Navratnas—cannot invest more than 30% of its net worth.
A company’s net worth is the sum of its equity capital and reserves. ONGC’s net worth is Rs69,943 crore, and therefore, its investment limit is around Rs20,982 crore. The firm has already exhausted this limit as investments made by its overseas arm ONGC Videsh Ltd, or OVL, total around Rs25,500 crore.
Contesting norms: ONGC’s R.S. Sharma. The public sector company had planned to invest Rs76,000 crore in the 11th Plan (2007-2012). Photograph: Harikrishna Katragadda / Mint
The company is now contesting this cap and claims that since OVL’s investments are approved by the cabinet committee on economic affairs, they should not be linked to ONGC’s net worth. It is waiting for a clarification from the department of public enterprises (DPE) which oversees the fun-ctioning of state-owned firms.
“When the government takes a decision, these financial ceilings do not come into play,” said ONGC chairman and managing director R.S. Sharma.
A Navratna company also cannot invest more than 15% of its net worth in a single project. This amount is further capped at Rs1,000 crore. OVL’s £1.4-billion (Rs11,214 crore) bid for Imperial Energy Corp. Plc. was, however, allowed as an exception.
“There is some confusion in this matter and the DPE circular is yet to come. We have taken up the matter with the ministry of petroleum and natural gas, our parent ministry,” said a senior ONGC executive who didn’t wish to be named. “In a note in 2003, the DPE had stated that investments made with the cabinet’s approval don’t form part of the 30% net-worth criteria.”
DPE is administered by the ministry of heavy industries and public enterprises. Phone calls and messages sent to DPE officials last week weren’t answered.
“We have written to DPE and have been following it up for a response. We are yet to hear from them,” said a senior official in the petroleum ministry who did not wish to be named.
During India’s 11th Plan to 2012, ONGC has projected a production of 140 million tonnes (mt) of crude oil and 112.4 billion cubic metre (bcm) of gas. The country’s economic planning is done five years at a time through plans called Five-year Plans. The current (11th) Plan details investments and objectives between 2007 and 2012.
“If worst comes to worst for ONGC, it can ask for a window from the DPE to infuse fresh capital and raise its net worth,” said a Delhi-based oil and gas sector analyst, who asked not to be named. “Some of these norms have become outdated. For some of the performing PSUs that have the ability to grow, an exception should be made.”
ONGC has been missing its targets for both exploratory and development drilling. Of the targeted 138 wells for exploratory drilling in 2006-07, it succeeded in drilling only 87. It could complete development drilling of only 178 wells against a targeted 214.
The company’s exploration and production activities have also been affected due to a global shortage of rigs. It has recently surrendered three of its 10 blocks in the Kerala-Konkan basin to the government for being unable to work on them for want of rigs.
Analysts say energy security is the key to the country’s ability to sustain growth of an economy that expanded by 9.4% last year and could grow by at least 8% this year. They add if ONGC’s efforts are successful, it could cut the flow of dollars out of the country.
India—the world’s fifth largest energy consumer—imports 75% of its petroleum requirements and accounts for some 3.5% of global consumption. It uses about 112mt of petroleum products a year, and the figure is expected to rise to 135mt a year by 2012, according to Paris-based International Energy Agency.