The Hindu Business Line : `Let the subsidy mechanism be transparent, consistent'

Mr Subir Raha, Chairman and Managing Director, Oil and Natural Gas Corporation (ONGC), one of India's largest corporates, has been in the news. Stressing on operational autonomy for public sector undertakings (PSUs), he wants the Government to adopt a more transparent system for working out a subsidy sharing formula.

In an interview to Business Line, Mr Raha shared his views on government policies that could hinder the growth prospects of ONGC and his recent spat with the Petroleum Ministry on operational autonomy.

Excerpts from the interview:

Why is it that every thing Subir Raha says becomes controversial? Do you think some of the government policies are hurting ONGC?

I would not call them controversial but `interesting'. In both public and private sector there are issues between the professional management and the owners or part-owners. Since ONGC is in the public sector and the biggest company so these things get attention.

The principles of corporate governance are the same, whichever sector you are from. Government policies in terms of professional management not only hurt ONGC but all PSUs. And there are issues of operational autonomy, which has been talked about in the Common Minimum Programme also, which I would like to be addressed.

What are the issues specific to ONGC?

When we talk about issues specific to ONGC there are several government policies which affect our operations and we have informed the Government about them. For example, the practice of ad hoc subsidy sharing along with subsidised gas pricing. When power and fertiliser companies can afford to buy gas from private producers at the market price, why can they not do the same from ONGC?

This whole concept of transferring profits from ONGC to power and fertiliser companies for gas, and profits from ONGC to downstream marketing companies for subsidy is going to adversely affect us.

Besides it will also impact the fundamentals of good corporate governance. ONGC's capital investment rate, which used to be Rs 3,000/4,000 crore per year, is today Rs 10,000 crore. And if we keep on transferring profits from our balance-sheet to that of other companies, it is not good for us as ONGC is a globally held company.

ONGC has time and again been saying that it wants to be exempted from the subsidy-sharing mechanism and instead contribute more to the exchequer. How do you propose to do this? Has there been any move to ask you to pay special dividend?

Instead of the subsidy route, ONGC is open to other routes. We have no issue in sharing profits, but the point is how we share it. In the dividend route every investor benefits. And we have declared 400 per cent dividend, which is a highest ever paid in India.

If we have to pay more dividend, we have to work on our profits. However, in the dividend route (though all investors get the share), the problem is that once dividend is declared, say, at 1,000 per cent, the next year's dividend has to be minimum three years' average and it is difficult to make that commitment as crude prices may fall to $40 a barrel.

Therefore, the subsidy mechanism can be through either tax or dividend, but let it be transparent and consistent, where everyone knows what is going to happen. Under the present system I work from quarter to quarter. All we are asking is for a proper mechanism.

What is the current equity structure of your company?

When the Government sold some of its equity in the company, the FIIs had six per cent. Over the last year and a half, they have picked up two per cent, thus taking their stake to eight per cent. While the Government owns 74 per cent equity, 9.5 per cent is held by IOC, 2.5 per cent by GAIL, and 14 per cent is out in the market. Of this 14 per cent, the FIIs hold 8 per cent.

The Government has decided to give in-principle nod to IOC to offload its cross holdings in ONGC.

However, the market is abuzz that there is a difference in opinion between ONGC and IOC on the mechanism of offloading. While ONGC wants to buy-back, IOC is said to prefer offloading in the market?

We have discussed the issue with GAIL, IOC and the Petroleum Ministry and a decision was reached; our proposal was accepted. As far as IOC is concerned, it wants the money, so where the money is coming from — ONGC or somebody else — it should not matter.

Second, today we have 14 per cent stock in the market and as far as ONGC is concerned if you go through last few years, each per cent is Rs 1,000 crore. Now if suddenly additional equity is brought into the market up to 9 per cent plus, the stock may lose its value because of over availability.

There have been allegations that you have been diverting funds to non-core areas such as retailing and that your success rate in exploration activity has not been so good. How do you explain this?

This is a canard against us. In the last four years 99 per cent investment has been in core sector, and balance one per cent was acquisition of MRPL (which was also on government instruction). It is important note that not only 99 per cent is in core business, but the investment rate has itself increased three times over the last four years.

Now come to retail. We have commissioned one petrol pump... Let us say we commission 20 or so more... I presume it will cost us Rs 100 crore. In a company's budget of Rs 10,000 crore capital what is this investment?

Besides, these investments will be done off ONGC balance-sheet. The statement that the ONGC balance-sheet is being used for such investments is wrong. As far as success rate in E&P activities is concerned, all I can say is that in the last five years we have made in-place reserve accretion of about 650 million tonnes of oil and oil equivalent gas (O+OEG).

Where are you planning to enter the ATF (aviation turbine fuel) and domestic LPG market? What are the business opportunities you are looking at? Also, what is the status of PetroKazakh? Are you going to rebid?

We have written to the Civil Aviation Ministry to get the land approval. The company has already got the DGCA's clearance for ATF. For the LPG retail business, plans are being firmed up.

ONGC is looking at various business opportunities including strategic partnerships and acquisitions. We will talk about them at an appropriate time as we have confidentially contracts to follow. As far as PetroKazakh is concerned, I would not like to comment.

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