The Telegraph
Since 1st March, 1999
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The Oil and Natural Gas Corporation has reported 68 per cent increase in net profits in 2002-03. This takes net profits to Rs 10,436 crore, Rs 10,282 crore if losses in Mangalore Refineries and Petrochemicals Limited, acquired from the Aditya Birla group, are adjusted. Similarly, turnover increased 50 per cent to Rs 35,821 crore for ONGC and to more than Rs 40,000 crore for the group. While it is true that the comptroller and auditor general raised questions about ONGCís accounting policies in 2001-02, variations were not significant. Hence, it is safe to presume that ONGCís net profits and turnover are roughly of the magnitude reported for 2002-03 and market capitalization is more than Rs 75,000 crore.

This makes ONGC Indiaís largest corporate organization and in terms of market cap, ONGC ranks 326th globally in the Financial Times 500 list and 133rd in the Forbes 400 list. The 2002-03 results should be good news for ONGCís share prices, already on an upward trend thanks to increased investor interest in petroleum companies like Indian Oil Corporation, ONGC, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited. What the government intends to do with ONGCís disinvestment is unclear. Strategic sale is obviously out. But the latest results may finally persuade the government to divest some equity without surrendering managerial control. ONGCís product profile of crude oil (60 per cent of revenue), natural gas (25 per cent) and small shares of naphtha, liquid petroleum gas, C2/C3 and kerosene explains trends in its net profits and turnover.

Sharp increases in 2002-03 are explained by deregulation of crude and product prices, as well as increased production of natural gas. Till April 2002, ONGC was insulated from global oil prices as product prices were administered, with phased increases expected to lead to global import parity prices in April 2002. This has happened for crude and some products and such deregulation and higher global prices explain better results in the last financial year. However, no such import parity pricing has occurred for natural gas and a maximum price is set. This artificially lowers ONGCís profitability and is compounded by the fact that the price set is lower than cost of gas production. Since global oil prices will remain soft in 2003-04, ONGC cannot replicate its spectacular 2002-03 improvement unless natural gas pricing is deregulated. Retail marketing of transportation fuels or expansions of exploration, production and refining cannot be expected to improve the bottom-line significantly. But this deregulation of natural gas pricing is certain not to happen quickly. Fertilizer (urea) and power producers will protest and urea and power price increases or targeting of subsidies is unlikely, especially in election years. There is not much Mr Subir Raha can do while the inter-ministerial group twiddles its thumbs.

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