Borrowing can’t be done for day-to-day business

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SummaryONGC chairman Sudhir Vasudeva is directing the company’s efforts towards venturing into new terrains like deepwater gas production and shale exploration

ONGC chairman Sudhir Vasudeva is directing the company’s efforts towards venturing into new terrains like deepwater gas production and shale exploration, and also on growing its overseas arm into an even larger entity than the parent. Vasudeva, in an interview with Noor Mohammad and Pranav Nambiar, explains the impact of subsidy burden and how ONGC is trying to reduce India’s import dependence.

In line with the Rangarajan committee recommendations, the government is expected to mandate that all future oil contracts adopt a revenue-sharing model. What are the implications?

For deepwater exploration, the revenue-sharing model will probably not work. Anybody coming in and investing billions of dollars will not wait for several years to recover his money. He would like to first recover his money and then share the profits. The tenth round of NELP will probably have a hybrid model of less risky ventures on revenue-sharing model and the risky ones like the deepwater blocks following the present cost recovery model. My perception is that where the investment is risky, people would want early cost recovery. If we want foreign companies to come in and bring in technologies and money, we have to give some concession.

Your subsidy burden is not going down despite the government’s burden falling. Any complaints from the shareholders?

There have been no shareholder complaints so far. The board has been showing concern time and again and we have taken up the matter with the highest authorities. I had even raised the issue before the Prime Minister and the finance minister. It is not that the gravity of the matter is not understood but the political compulsions are bearing heavily on everyone.

I recently returned from the US and investors there have shown concern over the issue. My take is that this is not sustainable any more. The fiscal deficit and CAD will go up if the current situation persists. This has ramifications of even our ratings coming down. Oil retailers have borrowed so much that it makes it difficult for them to borrow further. If you put any more load on companies like ONGC, our backs will break.

In first quarter, we got $40.17 per barrel as realisation while $40 is the cost of production, which gives little margins. Fortunately, we have other businesses so we are still in the black. But with these kind of profits we will not be able to generate enough internal resources. Our budgeted capex is

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