ONGC pays 300 dividend; cross-funding irks

Oil and Natural Gas Corporation on Monday paid a handsome dividend of 300 per cent amounting to Rs 4,277 crore but went public against gover...

Oil and Natural Gas Corporation on Monday paid a handsome dividend of 300 per cent amounting to Rs 4,277 crore but went public against government8217;s policy of bleeding the government-run oil explorer.

While highlighting fiscal achievement in 2002-03, chairman and managing director Subir Raha said ONGC8217;s success was despite government8217;s constant sourcing of funds from it, including subsidising operations of other companies, private or public. 8216;8216;The 48 per cent increase in revenues, therefore, is to be seen in the correct perspective of the substantial exploration risk, the huge burden of subsidies, and below-cost pricing of natural gas, plus the fact that there is no assurance of a stable fiscal regime on production from the nomination blocks as was evidenced by summary doubling of their cess in March 2002,8217;8217; Raha said in his speech to the tenth annual general meeting.

The Finance Ministry last year forced oil companies, mainly ONGC, to shell out large interim dividend to fund LPG and kerosene subsidies. Last month, the Cabinet approved a plan by which ONGC will bear one-third of the subsidy required for the two products with one-third paid from Budget and the remainder absorbed by the oil marketing companies.

Government8217;s share from the approved dividend is about 84 per cent or Rs 3,598 crore. Earlier, he said in his speech that ONGC had 8216;8216;to suffer under-recoveries running into several thousands of crores of rupees to subsidise gas consumers, the transporter-cum-processor, and other producers including Indian and foreign private sector companies8217;8217;.

8216;8216;8230;no other exploration and production company, to our knowledge, is required to subsidise other companies, public and private sectors combined, in all sectors of the oil and gas business,8217;8217; he added.

Vertical integration, Raha said, was essential to mitigate exploration risks and uncertainties of price volatility, subsidies and gas pricing. In that measure, he announced ONGC8217;s foray into petrochemicals and a tie up with BPCL on refinery and marketing.

Sources said ONGC8217;s first step in petrochemicals is setting up an ethane and propane extraction plant at Dahej followed by a naphtha cracker at Dahej Special Economic Zone. They said ONGC plans to take equity in BPCL8217;s proposed six-million-tonne refinery at Bina in Madhya Pradesh and in exchange, carry the downstream company in bidding for high prospective oil and gas exploration blocks.

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ONGC, which produces about 25 million tonnes of crude annually, bought majority share in Mangalore Refinery and Petrochemicals Ltd which operates a 9.69-million-tonne refinery and is setting up a chain of 610 petrol stations in four states.

Raha also said that ONGC has signed an agreement with Cairn Energy to buy equity in the Scottish explorer8217;s two oil/gas blocks.

Sources said ONGC plans to purchase Cairn8217;s 90 per cent stake in deepsea KG-DWN-98/2 block in Krishna Godavari Basin and 10-15 per cent in shallow water CB-OS/2 block off Gujarat coast. They said ONGC will pay close to 110 million for the equity and give Cairn 15 per cent each in its Ganga Valley GV-ONN-2000/1 block and Cambay basin CB-ONN-2001/1 block.

KG-DWN-98/2 is adjacent to Reliance Industries8217; large gas find while CB-OS/2 has yielded five oil and gas discoveries to date.