New Delhi: In what may impact investor interest in the Oil and Natural Gas Corp. Ltd (ONGC) follow-on public offer (FPO) due in July, the government has directed it and other upstream companies to pay Rs30,295.75 crore as compensation to state-owned oil marketing companies (OMCs) to partially offset losses on account of retailing subsidized fuel.
The other upstream companies are Oil India Ltd (OIL) and GAIL (India) Ltd.
ONGC will share an additional burden of Rs3,832 crore due to which its net profit for the last fiscal will take a hit of Rs2,000 crore, chairman and managing director A.K. Hazarika said on Friday.
The upstream companies will, for the first time, give more than their usual one-third share of the subsidy burden. For 2010-11, their share is estimated at 38.7%. The news sparked a drop in upstream oil companies’ stocks.
ONGC posted a profit of Rs16,100 crore for the first nine months of the last fiscal, compared with Rs16,768 crore in the year before. The government plans to raise around Rs13,000 crore by selling a 5% stake in the hydrocarbon exploration firm in which it holds 74.14%.
“This is an aberration. The investors will have to take a long-term call,” finance director D.K. Saraf said.
For the Rs78,190 crore of under-recoveries—the difference between the market price and fuel retail rates—borne by OMCs such as Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) for 2010-11, the government has provided a cash subsidy of Rs41,000 crore, with upstream companies asked to provide Rs30,295.75 crore.
Of this, ONGC will provide Rs24,892.43 crore compared with Rs11,554 crore in the last fiscal. OIL will provide Rs3,293 crore, with the rest coming from GAIL. ONGC, which has already paid Rs12,757 crore to the OMCs, will have to make a remaining payment of Rs12,135.43 crore.
IOC, BPCL and HPCL will have to absorb Rs6,714 crore as losses for the last fiscal, which will affect their profitability. The increased burden sharing on the part of the companies will also affect the financial results of GAIL, ONGC, OIL, IOC, HPCL and BPCL, to be announced shortly.
While ONGC got $55.94 (Rs2,510 today) for every barrel of crude oil sold in 2009-10, the net realization for the last fiscal was expected to be around $59 per barrel. This is now expected to come down to $52-53 per barrel, a loss of $6-7 per barrel.
“While the profit will be more than last year, it could have been (even) more... It is for the first time that our (upstream) burden has risen beyond one-third of under-recoveries,” Hazarika said.
ONGC fell 1.17% to Rs274.05 on the Bombay Stock Exchange on Friday. The benchmark Sensex rose 1.02% to 18,326.09 points. GAIL fell 0.34% to Rs426.60 and OIL fell 0.86% to Rs1,313.45.
With state-owned firms expected to lose around Rs1.8 trillion at current crude oil price levels from selling fuel below cost in the year to 31 March, they are looking at a fresh increase in the price of petrol. Prices were last increased on 14 May. The Congress-led United Progressive Alliance government decided to free petrol prices from state control in June, but state-owned oil marketeers had maintained the prices since 16 January under a government directive.
The government has also temporarily deferred a decision on increasing the prices of diesel and cooking gas till an empowered group of ministers on the pricing of petroleum products, headed by finance minister Pranab Mukherjee, meets.