Finance Minister P. Chidambaram wants public sector companies to step up their investments. But ONGC, though confident of meeting its planned target for 2012-13, fears that its internal resources may not be sufficient to sustain the company’s overseas investment plans beyond two years if its subsidy burden continues to be high.
With the second quarter of the current fiscal coming to a close, there is no clarity on the policy front, particularly on subsidy sharing. ONGC says that at the beginning of this fiscal it had cash reserves of about Rs 20,000 crore, and had planned a capital expenditure of Rs 33,065 crore for the current fiscal.
A debt-free company till date, ONGC says that if the current situation prevails, that is, subsidies and increased cess on crude oil sales, it will have to borrow or dip into its cash reserves. ONGC has been seeking a remunerative price for crude oil that will help sustain its operations, particularly overseas acquisitions. Last fiscal, ONGC had given a subsidy of about Rs 45,000 crore, to partially offset the losses incurred by public sector oil marketing companies for selling petroleum products at regulated price.
In the first quarter of this fiscal, it has given Rs 12,346 crore as subsidy, in addition to the increased cess amount. And if the trend is anything to go by, the oil major may end up sharing a similar amount of subsidy for the second quarter as well.
Free cash reserves
A senior company executive told Business Line that the cash reserves also include short-term debt of Rs 4,500 crore. Then there are unfunded liabilities of the company — leave encashments and medical benefits — amounting to about Rs 3,600 crore to be paid.
If these two figures are deducted from the cash reserves, then ONGC is left with less than Rs 12,000 crore as free cash reserves. According to the official, had the subsidy amount remained with the company, it would have been reinvested in future projects, including funding ONGC Videsh’s overseas acquisitions.
Industry sources say that the subsidy amount contributed by ONGC till date could have easily got 9-10 million tonne of oil from abroad. Besides subsidy, the company is a huge contributor to both the Central and State exchequer. Last year, it contributed Rs 27,797 crore to the Central exchequer and Rs 10,490 crore to the States.
However, critics say that ONGC benefits from high crude oil prices. But high crude oil prices would mean cost of services also going up, says the company official. ONGC argues that the subsidy burden can be offset by reduction in cess amount. “All we are seeking is a transparent mechanism, which has been proposed by various committees set up by the Government,” the official said.