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Richa Mishra

Mr Subir Raha

New Delhi , Sept. 26

OIL and Natural Gas Corporation (ONGC), which was weighing the option of charging nominal interest on the loans provided to its subsidiary, ONGC Videsh Ltd (OVL), has put on hold any such plans for the time being. The company will continue to provide interest-free loans to OVL for the present, Mr Subir Raha, Chairman and Managing Director, ONGC, has said.

Mr Raha told Business Line that ONGC was considering charging a nominal interest on loans offered to OVL, as it was looking at an arm's length relationship with the latter. The move was to bring in good corporate governance practices.

However, at the present juncture, it makes business sense to give interest-free loans to the subsidiary, Mr Raha said. Any decision on this front would have to be taken after examining the financial implications the decision will have on both ONGC and OVL, he said.

Mr Raha said it was necessary to ensure that the move to charge nominal interest did not impact the top line or bottom line of OVL.

Explaining the rationale of giving interest-free loans to OVL, he said that if nominal interest was charged on loans given to OVL from ONGC, as was done in the case of Mangalore Refinery and Petrochemicals Lid (MRPL), then OVL's bids overseas would have to include the cost of funds also, thus making the bids less competitive. ONGC charges an interest on funds offered to MRPL, as it is treated as a different market.

Till March 31, 2005, ONGC has forwarded interest-free loans worth Rs 11,547 crore to OVL. During 2004-05, OVL repaid Rs 653 crore of loan and advances to ONGC. The finances for the operations of OVL are provided by ONGC in the form of loans, interest-free advance and equity.

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