Fresh fuel subsidy to burn R2,000 cr of ONGC profits

Firms shares fall 1.17 to R274.05 on the BSE

Upstream oil major ONGC will have to factor in an additional Rs 2,000 crore hit from a changed subsidy sharing formula for the last fiscal as it comes out with its fourth quarter results in a few days. However,the higher share 38.8 per cent of subsidy the company is required to bear could be offset by a likely rise in profits.

Although ONGCs share price has taken a beating in recent weeks,analysts were divided on whether its follow-on pubic offer scheduled for July would be deferred.

Upstream hydrocarbon firms ONGC,Oil India and Gail India have a combined share of 38.8 per cent of the oil subsidy burden for 2010-11 fiscal,against 31 per cent in the previous two fiscal.

As per the new subsidy sharing formula for 2010-11,of the Rs 78,159-crore that retailers IOC,HPCL and BPCL lost due to selling fuel below cost,the three upstream companies have a share of Rs 30,297 crore.

ONGC CMD AK Hazarika said the company is paying Rs 3,832 crore more in subsidy than it had projected earlier. ONGC has been asked to contribute Rs 24,892.43 crore,OIL Rs 3,293.08 crore and Gail India Rs 2,111.24 crore. ONGC bears its share of subsidy by giving a discount on the crude it sells to refiners. Our profits will be adversely affected by Rs 2,000 crore due to this additional subsidy outgo, Hazarika said.

The government has borne more than half of the under-recoveries of oil companies in 2010-11,while the rest is shared by retailers. The impact of higher subsidy burden on the net profit of ONGC could adversely affect the funds the government could generate from the planned 5 per cent share sale. Of the upstream subsidy,IOC will get Rs 16,703 crore,BPCL Rs 6,960 crore and HPCL Rs 6,632 crore.

Hazarika said the companys profits in 2010-11 will be more than Rs 16,700 crore net profit it recorded in 2009-10. ONGCs net price realisation on crude oil sold to refiners stood at 52-53 per barrel in 2010-11,compared to 55.94 in 2009-10.

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ONGC shares ended 1.17 per cent down at Rs 274.05 on the Bombay Stock Exchange on Friday. He also said that the companys investment plans will not be impacted by the higher subsidy outgo. ONGC intends to invest Rs 30,000 crore this fiscal as planned. Hazarika said the timing of the FPO will be decided by the disinvestment department.

We were told that the FPO would happen in first week of July and accordingly,we are prepared, he said. The government was hoping to raise Rs 14,000 crore from the public offer,but it could fetch less considering the decline in price.