The proposed doubling of gas price to USD 8.4 mmbtu from April 1 next year should add roughly Rs 4000 crore to annual profit, ONGC chairman and managing director Sudhir Vasudeva said in an interview to CNBC-TV18.
Oil minister Veerappa Moily Tuesday reiterated the government’s commitment to raise gas prices and said the revised gas price would be notified shortly.
“What came as music to our ears yesterday was that very categorically it was told that we will be given the producer price and as regards the subsidy to be given to fertilizer and power sectors, that would be decided between the finance ministry and the concerned ministry,” Vasudeva said.
Vasudeva is hoping that the government will allow ONGC to retain much of the profits from the higher gas prices, as the company was bleeding cash from selling oil at subsidized prices.
Vasudeva is doubtful if the under-recovery on diesel can be eliminated in six months, because the 50 paise per litre monthly increase in diesel price is not enough to bridge the Rs 9 per litre under-recovery.
He has warned that unless the government acted decisively on resolving the oil subsidy issue, ONGC’s cash reserves would be drained in the next couple of years to fund its capex programme. The company’s 12th plan outlay is Rs 1,65,000 crore, which works out to around Rs 35,000 crore annually.
“There is no threat but if we don't address this subsidy burden this will start affecting us because our outlay for this year is about Rs 35000 crore and since we don't get any extra budgetary support, all this we have to generate through our revenues,” he said.
He said at current level of net realization, the company would not be able to generate Rs 35,000 crore
“So we will have to draw down about Rs 5000 crore this year and our projection is that in case the prices do not change and we continue getting same prices of about USD 43-44 we might need another Rs 5000 crore next year as well,” he said.
“That means in next two years we would finish our cash, then we will have to go to the market to either raise that and if we don't do that then we will have to curtail our activities,” he said.
Next Page: Full interview transcript
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Below is a verbatim transcript of the interview on CNBC-TV18
Q: One of the big things that the Oil Minister spoke about yesterday is that the gas price hike will be notified very soon effective from April 1. How does that change things for you? Does it improve your financials considerably or do you think the government will still come and eat away most of it probably to pay fertiliser subsidies?
A: It came as music to our ears yesterday that we will be given the producer price. As regards to the subsidy to be given to fertiliser and power sectors, which has been bothering us in the past, that would be decided between the Finance Ministry and the concerned ministry.
So that is music to our ears because every dollar increase in gas price increases our topline by about Rs 4,000 crore or by increase of USD 4, which is expected in April, hopefully, should increase by about Rs 4,400 crore in our bottomline and about Rs 15,000 crore in our topline.
Q: What is your best estimate in terms of how much you might be allowed to keep because when the Finance Minister was speaking about this a few months back, he had made it quite clear that government wherever it sees these kinds of upsides will watch with a hawk eye?
A: I hope we will be allowed to keep entire thing because we are bleeding on oil subsidy front.
Q: The other point that Veerappa Moily made at his conference yesterday was that in six months diesel prices will be completely deregulated. Although that seems highly unlikely at this point in time, what is your view on that?
A: Currently, the under-recovery on diesel is about Rs 9 a litre and at this rate of 50 paisa increase it is not possible but he indicated that there is no plan or initiatives in the ministry at this juncture to increase price at one go. So this 50 paisa per month would continue to happen. However what he also meant was had this rupee not fallen, had crude oil prices not risen in the past, by now the diesel probably would have been totally deregulated because the initiatives were started way back in January this year.
Q: Any clarity on who will pay GAIL’s portion now that GAIL is out of the subsidy net?
A: All these are the recommendations given even in the Kirit Parikh committee recommendations and as and when the Kirit Parikh committee recommendations come for discussion etc, clarity will emerge from there.
Q: There were concerned expressed about your capex plans with this fast erosion of your profits because of the oil subsidy. What is the position now, how much have you left for capex and how much do you think you might need say FY15 and FY16?
A: What I have been telling is that immediately there is no threat but if we don't address this subsidy burden this will start affecting us because an outlay for this year is about Rs 35,000 crore and our 12th plan outlay is about Rs 165,000 crore. So every year it is of the same order of about Rs 35,000-36,000 crore and since we don't get any extra budgetary support, all this we have to generate through our revenues.
At this level of net realization, we will not be able to generate Rs 35,000 crore. So we will have to draw down about Rs 5000 crore this year and our projection is that in case the prices do not change and we continue getting same prices of about USD 43-44 we might need another Rs 5000 crore next year as well. That means in next two years we would finish our cash, then we will have to go to the market to either raise that and if we don't do that then we will have to curtail on our activities.
Q: Can you give us some estimates on how much the realisations may go up in the second half of the year because even in this quarter gone by your net realisations went to USD 45/barrel which was a growth of 12 percent on a quarter-on-quarter basis?
A: First quarter we got USD 40.17 a barrel net realisations, second quarter we got USD 44.84 a barrel so for H1 the average is USD 42.56 a barrel. So we are projecting same thing and indicating that in case we get about USD 43 for the year then we will be drawing about Rs 5000 crore from our cash.
As regards this gas incremental will come, only for next year. If at all the gas prices are increased from April 1, then we will start getting these benefits from next year and we will get about Rs 4000 crore in our bottom line.
Q: If we go with this 50 paisa increase undercurrent assumptions of dollar and crude price when do you think diesel gets deregulated?
A: It is very paradoxical if the crude oil prices decrease then also it is bad for us in the sense that we will get net realisations which gets decreased because we have to pay about USD 64/barrel of subsidy so less is the price we will get less. Second thing is if rupee appreciates then also we are affected. However on the other hand from both these counts crude oil price decrease as well as rupee appreciation the subsidy burden decreases. So we are only hopeful that if the subsidy burden decreases our burden should come down. It should not so happen that the government adjusts that to take care of the fiscal deficit and then we are burdened with the same amount of subsidy.
Q: What is your view on crude prices itself in the Middle East? Is the Iran-EU pact a major dynamic? How are you seeing crude prices, any bearishness?
A: Yes immediately the crude oil prices have softened as a result of this pact between six countries and Iran and it could be spontaneous or it could stay for a longer time only time will tell. Everything would depend upon how things pan out between Iran and the six countries in the next six months. So this USD 7 billion of concession which has been given can be even further increased and even more concessions can come and that will only help India in terms of reducing our burden of import bill of crude oil etc so it is all good for us.
Q: How are you expecting prices to trend, is the Iran-EU deal enough to cast a further bearish impact on Brent prices? Do you see USD 100 a barrel happening anytime soon say in a couple of months?
A: All these predictions are there, people who keep watching the trends on crude oil prices are indicating that crude oil prices will soften but the predictions have not come true in the past so it is very difficult for me to guess. But as the chairman of MRPL I am happy that in case we get this Iran crude, which is the best crude for us as far as MRPL is concerned, and if the crude oil prices soften that will be helpful for us.
Q: Would you want to update us anything more on ONGC Videsh Limited (OVL) deals, we just heard about one deal being signed in Vietnam, are there any more acquisitions by OVL?
A: Yes always some air is in the fire, we have a board meeting today of OVL where few proposals are there and it is premature for me to talk about that. It is about bidding and once we bid and once we succeed then on we will tell the press about it.
Q: Will you be bidding in the New Exploration Licensing Policy (NELP) rounds, the one that's upcoming?
A: Yes absolutely we will.
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