ONGC likely to suffer a loss of over Rs 3,000 crore

With the Government yet to decide on raising the price of natural gas sold at administered price, ONGC is likely to suffer a loss of over Rs 3,000 crore during the current fiscal. It suffered a loss of Rs 2,140 crore in 2007-08 for selling natural gas at administered price reports Business Line.

ONGC has demanded a hike to /million British thermal units (mBtu) from the current .1/mBtu. At the prevailing price of .1/mBtu (cost plus return on capital employed) for the produce it sells from fields given to it on nomination basis, the company is incurring negative margins on gas sales.

ONGC sells roughly 47 million standard cubic metre a day (mscmd) of gas under APM that is 80 per cent of the gas it produces.

Hoping that the Government will soon decide on hiking the fuel price, a company official told Business Line that “there is a potential for upside revision of APM gas price. To sustain future investment a minimum price of /mBtu is required.”

The Petroleum Ministry, on the other hand, has been maintaining that the time is still not appropriate to raise the price and there is a huge gas deficit in the country.

“Differentiated prices can be good for specific subsidised sectors, however, such an operating environment in the long run may be detrimental as it constraints the flow of investment into the sector,” said Mr Gokul Chaudri, Partner, BMR Associates.

“Every year a significant part of India’s demand for gas remains unmet and the national oil companies lose a sizeable amount of revenue by selling gas at lower than market price,” he said, adding that “the time was right to do away with APM pricing”.

On a more cautious note, Mr Ajay Arora, Partner – Transaction Advisory Services, Ernst & Young, said, “Today, there is a need for a mix of market determined price and subsidised price.

“In the long run, the gas price would ultimately be driven by the economics of using gas (subject to gas availability) which in turn would largely be a function of the pricing of the substitutes like naphtha, fuel oil and so on.”

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