Discounts to refiners pull ONGC net down

NO RESPITE FOR OIL PSUS

Oil and Natural Gas Corporation (ONGC), India’s largest oil producer, reported 5.7 per cent drop in net profit during the second quarter ended September 2008. The company gave its highest-ever discounts to state-owned refiners during the period.

The oil producer’s net profit fell to Rs 4,808 crore in the quarter ended September 2008, down from Rs 5,098 crore in the year-ago quarter. However, sales increased 13.1 per cent to Rs 17,492 crore, as against Rs 15,464 crore in the corresponding quarter a year ago.

ONGC gave its highest-ever discounts, worth Rs 12,633 crore, to state-owned refiners to partially compensate them for selling fuels at below-production costs. This is substantially higher than the Rs 9,800 crore the company had projected earlier.

Calling the second-quarter results an aberration, ONGC Chairman and Managing Director RS Sharma said, “But for the subsidy payment our net profit would have been Rs 7,066 crore higher during the quarter.”

“The ministry’s decision on higher subsidy burden came a little late in the day. There is currently no mechanism for equitably sharing the burden,” said Sharma.

ONGC sold its crude oil at an average rate of $46.72 a barrel in the second quarter ended September 2008, as against the market rate of around $119 a barrel. Thus, the discount comes to $72.67 a barrel, which works out to decrease in sales of Rs 12,663 crore.

“There has always been a trend of the subsidy outgo moving in tandem with oil prices. That is why this quarter is an aberration,” Sharma said.

However, the falling value of the rupee against the dollar helped the company reduce its losses marginally as its selling price in rupee terms fell by 10.15 per cent compared with the year-ago quarter. In dollar terms, the selling price fell 16.77 per cent.

During the second quarter, ONGC’s crude oil production from its domestic fields fell 2.14 per cent to 6.85 million tonne from 7 million tonne in the year-ago quarter.