The Hindu : Business : Subsidy: ONGC for alternative mechanism

Online edition of India's National Newspaper
Thursday, Oct 14, 2004

Business

Business

Subsidy: ONGC for alternative mechanism

By N. Ravi Kumar

CHENNAI, OCT. 13. The Oil and Natural Gas Corporation (ONGC) wants the Centre to consider an alternative mechanism by which the company stops picking up the kerosene and cooking gas subsidy bill, but its dividend payout to the Government is increased.

Such a structure would enable the Centre to take care of the bill and ensure investor confidence in the national oil companies is protected, according to Subir Raha, Chairman and Managing Director of ONGC.

Under the existing formula, kerosene and liquefied petroleum gas subsidy is shared between the Centre, the upstream (exploration and production) and the marketing companies. While the Centre's contribution is fixed — Rs. 3,500 crores in the current fiscal — ONGC and GAIL incur one-third of the balance and the marketing companies the balance.

The ONGC had been directed to pay Rs. 1,024 crores for the subsidy in the second quarter this fiscal. The company, which paid around Rs. 2,600 crores in 2003-04 for the subsidy, had already incurred Rs. 1,900 crores this year.

Hinting that the Centre could make use of the enhanced dividend towards the subsidy, Mr. Raha told The Hindu here today that his formula would benefit Indian Oil Corporation too, as it had nearly 10 per cent holding in the ONGC. "If dividend is higher, cross-holding companies such as IOC could also mitigate their losses," he said.

Though the Government, as a owner of the oil and gas fields, had a right to charge rent, the existing subsidy formula affected the bottomline and dividend pay-out of the companies, he said. The proposed formula, he added, would be in tune with the best corporate governance practices.

On ONGC's plan to purchase IOC's holding in the company, Mr. Raha said: "Our logic is that each company should buy back in line with the Securities and Exchange Board of India (SEBI) guidelines". The move would reduce ONGC's capital base of Rs. 1,426 crores and increase the earnings per share. It would have little bearing on the debt equity ratio of the company, as ONGC was a zero debt company. Moreover, if IOC offloads the stake in the market, it could lead to a spurt in the floating stock.

On Sagar Samriddhi, the deep-water exploration programme of ONGC on which it spends nearly $1 million daily, he said: "In the east coast, we have made one discovery. It is a medium-sized good field. In the west we are now in the Cambay area. Soon the rigs would be moving to the Kerala-Konkan coast. Depending on the results, all the three deepwater rigs (two hired and one departmental) would be moved to East Coast.

The Sagar Samriddhi envisages an investment of around $1.5 billion spread over three years and was one of the single largest among such exercises, worldwide. The three drill ships would initially explore 37 objects in deep-waters.

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