See upside on price hike; no message on subsidy yet: ONGC

Finance minister P Chidambaram on Friday clarified that the new higher gas price of USD 8/mmbtu will be on the output cost and subsidies may be provided to the power and fertiliser sector.

Speaking to CNBC-TV18 on its impact, Aloke Kumar Banerjee, director for finance at Oil and Natural Gas Corporation (ONGC) said the hike will show an improvement in profits if all other things remain constant. He also saw a positive impact on the overall investment scenario in the oil and gas sector.   The government’s move on gas price hike also raised questions on subsidy break to be followed. Banerjee said the company has not received any communication from the government on the issue. Commenting on weak rupee’s impact on the company’s margins, he said that the underrecoveries may end up higher. Also read: Govt not to bear higher subsidy on gas-price hike: Montek Below is the edited transcript of his interview to CNBC-TV18. Q: What did you make of that clarification the Finance Minister had to make between input and output? Have you had to rework expectations for Oil and Natural Gas Corporation (ONGC) as well on the back of that? A: As far as ONGC is concerned, we have not got anything officially. So, at this point of time, it is very difficult to predict what will be the impact on ONGC. Last week, I had spoken about impact of profit after tax; other things remaining same. But, being a government company, we have to respond to their call. Definitely there are two things we can have. One, there will positive impact on the overall investment scenario and environment on the oil and gas sector. Second, as far as company is concerned, at micro level we feel there must be some upside. That is what at this stage I can convey. Q: The last we spoke you did talk about profit expectations to the tune of Rs 8,500 crore. Given these clarifications both with regards to the power industry and the fertiliser industry, would it impact the profit expectations you were imputing for the years ahead? A: I told that other things remaining same, that is impact on our profit. I do not say that is our expectation. We can say that this is the impact. Ultimately there are the modalities and other things. Then only we will be able to scale how much will be the impact. There are two positives there. One is industry as a whole which is giving a positive impact on the investment environment particularly in the oil and gas. For example, if ONGC gets some more surplus, it will then definitely will boost our investments in explorations and allotment of the fields. Second, there is some upside. I cannot predict on the exact quantification. Other things remaining same, this is the impact on PAT. But government is having their own compulsion and other factors. As a government company, if they want us to continue to government's call, we have to respond to that. So this is the status at present. Basically, upsides are there, both for the industry as a whole as well as the company as a whole. Q: At this point, have you been given any clear communication on what the subsidy breakup might be? There was another comment from the Finance Minister suggesting that they are going to keep a hawk's eye on the profits from companies like ONGC. The observation was that perhaps that ad hoc subsidy sharing mechanism could be coming back. Have you been given any clear communications on how subsidy sharing will be broken up this year? A: We have not yet received any communication on subsidy. For the first quarter last year, we have been asked to contribute USD 56/barrel of oil sold including the condensate quantity. After this gas price revision we have not received any communication. It will take some more time when we will be in a position to convey it more precisely. Q: At this point given the number of price hikes that have been both on petrol and diesel any change in where subsidies stand at currently? A: It is a two way thing. One, the diesel price increase is being another hitch. There is an expected net reduction in the subsidy and under-recovery. On the other side the rupee has weakened against dollar. As a result there is an upward pressure on the under-recovery. Both are working crisscross. Exactly what will be the impact and that will determine perhaps the contribution by the upstream oil companies. This current fiscal’s first quarter average price has come down compared to last year's gross price. For our subsidy remaining same of USD 56 or effectively for ONGC, it is almost USD 63. As a result, my net price has come down. But at the same time, we get little bit of favourable impact of exchange rate. So, these two things are working. Where it will cut off each other is a point anybody cannot predict. It all depends when the actual things are coming. So it is very difficult to predict precisely at this point of time.