`Financial dependence on ONGC for investments must end'

Richa Mishra

New Delhi, March 5

The issue of whether ONGC Videsh Ltd (OVL) should have its own commercial identity, independent of parent ONGC, seems to be simmering once again.

The Finance Ministry is understood to have suggested that OVL should be asked to fund acquisition of assets through its own balance sheet, instead of seeking financial assistance from ONGC. This in effect would mean that OVL should be a standalone company, which is well capitalised, sources said. The Finance Ministry has expressed this view time and again, sources said.

At a Cabinet Committee of Economic Affairs (CCEA) meeting in February, when a decision to give the company permission to invest in two blocks in Nigeria was being considered, the Ministry is said to have voiced similar sentiments.

A decision was deferred as doubts were cast on the size of investment.

The Cabinet's permission was sought to pay signature bonus of $485 million to Nigeria's Department of Petroleum Resources for beginning work on OPL-321 and OPL-323.

While deferring the proposal the Cabinet had asked the Petroleum Ministry to consider in depth certain views expressed by certain authorities, as well as to consider the proposal of OVL funding its acquisitions. Currently, its parent ONGC aids OVL. The sources also said that ONGC has lent around Rs 12,000 crore to OVL. At present, no party would look at OVL without ONGC's balance sheet.

Investment limit

OVL's investment limit is currently set at $75 million or Rs 300 crore, whichever is less. A similar proposal to create a new separate identity with substantial financial muscle and presence in the total value chain of oil and gas business was under consideration last year as well.

The thinking was to recast OVL into an independent entity by taking it out of ONGC ambit.

ONGC has been maintaining that OVL was currently operating as a separate company because of the special empowered committee of secretaries route available to it for speedy clearance of its proposals.

Asked about the status of the reported request made by OVL, the overseas arm of ONGC, to consider empowering its board to take investment decisions and increasing the investment limit, sources said, "No formal proposal has been received by the Ministry as yet".

There were two options being proposed - first was to bring the investment limit in line with what is prescribed for the public sector enterprises, that is, an investment limit up to Rs 1,000 crore.

(This article was published in the Business Line print edition dated March 6, 2006)
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