With diesel under-recoveries still at a steep Rs 10.5 per litre, it is only a matter of time before the government does away completely with price controls, believes Sudhir Vasudeva, CMD, Oil and Natural Gas Corporation.
“There is absolutely no other way because the government cannot give more [subsidy] -- with both the current account and fiscal deficits being under pressure,” Vasudeva said in an interview with CNBC-TV18. “Oil marketing companies cannot borrow more, the interest burden is back-breaking. Where is the choice?”
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While the government has allowed oil marketing companies to raise diesel prices by 50 paise a litre every month, a price hike did not take place today. But Vasudeva termed it as an “aberration” and said he did not believe the government would have called for it.
Below is a transcript of the interview.
Q: Do you think 2014 is going to be a much better year for you? At least gas prices are going to be higher.
A: Certainly. I am an optimist and I believe with the kind of reforms which the government has taken in last one year, the year ahead is certainly going to be a better year.
Q: One issue is the Gujarat High Court directing ONGC to pay royalties on the onshore crude production at the gross billing rate rather than the post subsidy billing rate. Some investors and analysts have been slightly concerned about this and the impact it would have on ONGC. What would the impact be and will ONGC appeal this decision?
A: We are studying it and will definitely appeal. The Gujarat High Court says this is a matter between government of India (Ministry of Petroleum) and ONGC, and the government of Gujarat cannot be short-changed, in a sense we pay them post-discount royalty rates. This is the view.
The total impact from 2004-05 [till now] is around Rs 10,000 crore and this will have a recurring impact for the future as well. We will challenge it in the Supreme Court and the Ministry of Petroleum will also be one of the respondents.
Q: How will the gas price change your financials in FY15?
A: Every dollar increase in the gas price will add about Rs 4,000 crore to our top line but after taking out the royalties, taxes and dividend, etc, we will be left with something like Rs 1,100 crore for every dollar. So if the gas price increases by about USD 4, it will add about Rs 4400 crore to our bottom-line.
Q: What about diesel deregulation: do you feel that as we get to elections, and given the way the ruling party has performed, the monthly 50 paise increase may be stopped?
A: My belief is that 50 paise increase will continue. Whether a one-time increase of Rs 4-5 will happen or not happen is a matter of conjecture.
Q: The January 1 increase didn’t come.
A: The under-recovery is of the order of about Rs 10.50 per litre for diesel. If it didn’t happen in January, maybe it was an aberration. My own opinion is that it should continue and will.
Q: Complete deregulation is ruled out, to your mind?
A: Complete deregulation depends on whether they can take this politically-sensitive decision of deregulating in one go. We have been pleading -- both ONGC and Oil India -- for being given a price of at least USD 65 so that the oil business continues to have good margins.
Especially, in the context of Mumbai, where we have demonstrated that the future redevelopment is not viable even at USD 65. Bombay High North is now breaking even at USD 66, while Bombay High South at about USD 76. The government has to accept that we have to increase prices of petroleum products.
There is absolutely no other way because the government cannot give more [subsidy] than this -- with both the current account and fiscal deficits being under pressure. Oil marketing companies cannot borrow more, the interest burden is back-breaking. So where is the choice? This has to happen: it is a matter of time when it will.
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