ONGC expects Rs 7,000 crore loss on low gas price but will not cut capital expenditure


NEW DELHI: Flagship explorer ONGC expects to lose up to Rs 7,000 crore from gas business in the current fiscal as the price under a government formula fell $2 below production cost but the company will not cut capital expenditure but will pace investments with the situation, chairman Shashi Shanker said on Friday.
“The current gas price does not cover the cost and the company has made representations for suitable amendments to the formula. Prices have to be remunerative if the domestic output has to be raised. The (petroleum) ministry is seized of the matter. They are favourably inclined and a committee has been constituted to look into this,” he said.
Director (finance) Subhash Kumar explained that it costs about $3.7 per unit to produce gas (from fields given to the company without bidding), the current price would result in a loss of Rs 10,000 crore. But since the company will not have to pay tax on the lost revenue, the net loss would be in the region of Rs 6,000-7,000 crore, depending on the fluctuation in the rupee exchange rate. Every dollar reduction in gas price leads to a revenue loss of about Rs 5,200 crore and a hit of Rs 3,500 crore on profit.
The price of gas tumbled to a decade’s low of $1.79 per unit (million British thermal unit) from this month. Domestic gas price is revised in April and October under the 2014 pricing formula benchmarked to surplus markets such as the US, Canada, UK and FSU (former Soviet Union) countries. A committee is currently looking into the formula and the possibility of setting a floor price for gas from old fields.
Shanker, however, said the gas marketing policy approved by the government on Wednesday will benefit the company by making smaller discoveries, new projects and investments made to enhance recovery from old fields viable.
He said the company will look at merging its two oil refining subsidiaries, Hindustan Petroleum and MRPL after June 2021. “There are a lot of synergies in the merger of MRPL with HPCL. For one, it will balance the fuel marketed by HPCL with the refining capacity, eliminating the need to buy fuel from other companies,” Shanker said. But before this merger happens, ONGC is looking at merging ONGC-Mangalore Petrochemicals Ltd (OMPL) with MRPL, he said.

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