State-owned Oil and Natural Gas Corporation (ONGC) wants the government to resolve critical issues such as fuel subsidy sharing and natural gas pricing before going ahead with the planned $3-billion (Rs 18,000-crore) stake sale.
Commenting on the stake sale, ONGC wrote to the oil ministry saying any disinvestment at this stage may not realise the true potential/value of the company shares.
The government plans to sell 427.7 million shares, or 5% of its stake in ONGC worth Rs 17,400 crore at current prices this fiscal. The disinvestment is part of the new government’s plan to narrow budget deficit to the lowest in seven years.
ONGC said its payout to help fuel retailers sell diesel, LPG and kerosene at subsidised rates to consumers has been steadily rising — from Rs 44,466 crore in 2011-12 to Rs 56,384 crore in 2013-14.
In 2013-14, its net realisation after subsidy payout was a mere $41 per barrel of oil. Out of this, the company has to meet cost of production, which is $42-44 per barrel as well as pay taxes.
“ONGC has been requesting ministry to review the existing sharing mechanism so as to ensure a minimum realisation price of $65 per barrel to generate sufficient cash for domestic exploration and international acquisitions,” it wrote.
While the subsidy sharing has adversely impacted its bottomline, the non-transparent mechanism of subsidy sharing has become a corporate governance issue, ONGC said.
“ONGC’s independent directors have been expressing their concerns on the existing mechanism. Investors have also expressed their concern on the current mechanism. As per them, the current mechanism is uncertain and due to which they are not able to properly value the shares of ONGC,” it wrote.