Oil and gas major Oil and Natural Gas Corporation (ONGC) will be left with cash reserves of a mere Rs 5,000 crore by the end of 2013-14 after the company transfers unfunded liabilities to trusts, employee benefit schemes and spends some money on capex. ďONGC started 2013-14 with a cash balance of around Rs 13, 200 crore and could end the year with around R5,000-6,000 crore in hand,Ē director (finance) AK Banerjee confirmed to FE.
The explorer plans to convert Rs 5,700 crore worth of its unfunded liabilities, including leave encashment and post-retirement benefit liabilities, into funded liabilities, a move that executives explained will mean an outgo of cash since the money will be deposited in a separate corpus. However, Banerjee pointed out the move would also fetch the firm tax benefits since the leave encashment account with LIC would, for instance, help it earn tax-free interest.
Banerjee said the final cash balances would also depend on prices of crude oil as also currency movements, given these determine how much ONGC realises through crude oil sales. The finance director said the final capex number would be crystallised soon.
Given the oil and gas explorer needs to help subsidise oil marketing companies, its internal generations are expected to fall around R2,000-3,000 crore short of its capex requirements of R31,500 crore. ONGC has planned to spend R35,000 crore in 2013-14 on capital expenditure; in the past, the explorer has typically met 90% of its annual targets.
ONGCís decision to provide for unfunded liabilities will reveal its true cash balances, in some senses now inflated. However, smaller cash reserves will hit ambitious exploration plans ó entailing an investment of R1.64 lakh crore in the 12th Plan period of 2012-17. Chairman Sudhir Vasudeva had hinted in a recent interview to FE that his firm may need to borrow if the subsidy burden is not reduced.
In mid-November, analysts had pared their earnings per share estimates for FY14 to R32.10 after the September quarter Ebitda of R12,100 crore missed estimates following weaker-than-expected net realisations at $2.40 per barrel. In the first quarter of the current fiscal, ONGC had reported a sharp drop in Ebitda to R8,490 crore, down 24% year-on-year, led by higher other expenditure of R4,580 crore and higher staff costs at R590 crore.
The company accounted for a one-off provision of Rs 1,200 crore for the conversion of post-retirement benefit scheme from the defined benefit scheme