Subsidy burden: ONGC may go broke in 2 years | business | Hindustan Times
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Subsidy burden: ONGC may go broke in 2 years

business Updated: Sep 09, 2013 00:54 IST
Arnab Mitra & Anupama Airy
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The government’s practice of forcing state-owned ONGC Ltd to shell out a part of its oil subsidy burden is depleting its cash reserves at an alarming rate and is threatening to push this PSU cash cow into losses.

“ONGC is left with only about `13,000 crore in cash and if we continue to subsidise at this rate, our cash reserves will go down to zero in the next two years,” said ONGC chairman and managing director Sudhir Vasudeva in an exclusive interview with HT.

As part of the government’s fuel subsidy-sharing mechanism, ONGC had to give discounts of R12,622 crore to state-owned oil marketing companies (IOC, HPCL and BPCL) in the first quarter of 2013-14, up from `12,346 crore in the previous corresponding quarter.

The company, which ranks No. 4 among India’s most valuable companies — after TCS, Reliance Industries and ITC — with a market capitalisation of `2.47 lakh crore, had a cash pile of more than `25,000 crore in 2010-11. But if the current trend continues, it will have to borrow to sustain its day-to-day operations.

ONGC shares, which have traded in the `240 to `340 band since April 1, closed `289.15 on Friday. It hit a 52-week high of `354.10 on January 18 this year.

Consider this: even as the global oil prices have touched a high of $110/barrel, ONGC’s net realisation is only $40.17/barrel against its net production cost of $40/barrel.

“ONGC earns only a few cents on each barrel of oil… Can it survive with this much?” asked Vasudeva, adding that the company’s operational costs are going up and it needs to generate sufficient funds to finance its future growth.

Vasudeva’s take: ONGC should get at least $65/barrel against the global oil price of $100/barrel.