After the huge outcry by state-owned refiners against subsidising petroleum products, it was the turn of producer Oil and Natural Gas Corporation (ONGC) to warn against the subsidy mechanism that is weakening its profitability. Declaring the company’s financial results for the first quarter, chairman and managing director Sudhir Vasudeva said that although the firm made a net profit of R6,078 crore — 49% higher than what it was a year ago — it was largely helped by a weak rupee. The company realised only $46.62 a barrel on the crude it sold during the June quarter — aided by forex gains — while its production cost was hovering around $38. Seven years of subsidising crude to refiners has hit ONGC’s profitability by over R97,000 crore, Vasudeva said. Edited excerpts:
To what extent has subsidising downstream firms impacted your revenues?
The government is right in taking subsidies from us. It’s only that it should be a little more transparent and we should be remunerated. Last year, our cost of production was $38 a barrel before the cess was increased to $44 a barrel. It has been increasing at 8%. The cost of production by the end of this fiscal would be $47. If we realised $46 on every barrel of crude, it is because the dollar has appreciated and we have gained nearly R400 a tonne — from R2,100 to R2,500. Had it not been so, we would have been in losses. In the first quarter of last year, the subsidy outgo was close to R12,000 crore, while in the second quarter, it was R5,000 crore. So it keeps changing. We cannot predict how much the company’s profitability will be. Exchange rates will impact even the revenues from joint ventures too.
How much has ONGC gained from forex variations in the first quarter?
Of the close to R4,000 crore increase in revenues, as much as R2,900 crore is from price increase due to a weak rupee. The rest is through quantity variants. The weak rupee also helped pushing down cost of production, and this year it has been less than $38 a barrel.
When do you think the subsidy mechanism will ease?
I am an eternal optimist. For the last eight years, we have paid more than R1.16 crore (to subsidise oil refiners) and our profit has been impacted to the tune of R97,064 crore so far. If the subsidy