Goldman raises governance issues with ONGC

Investment banker Goldman Sachs today raised corporate governance issues with Oil and Natural Gas Corporation (ONGC), saying the government took $20 billion in cash over the past six years from the company without consulting minority shareholders.

“Since 2003-04, the promoter (the government), which owns 74 per cent, has taken away cash from the company on a quarterly basis for subsidising loss-making state-owned downstream companies. So far, ONGC’s promoters have taken cash of almost $ 20 billion from the company without consulting the minority shareholders,” Goldman said.

ONGC gives discounts on crude oil it sells to state-owned refiners to partly make up for the losses they incur on selling fuel below cost.

ONGC Chairman and Managing Director RS Sharma denied compromising on corporate governance. “We give corporate governance utmost importance. At no point has ONGC compromised on corporate governance issues.”

He said the decision to give subsidy on fuel was taken after deliberation by the board and the government was justified in asking for such discounts as unlike global peers, ONGC did not have a production sharing regime with the government on oil and gas it produces from the fields given to it on a nomination basis.

Under the production sharing regime, companies share a certain percentage of oil and gas they produce with the government, who is the owner of the mineral resource.

“Despite repeated objections raised by investors and more recently by independent directors on ONGC’s board, there has not been headway on this issue,” Goldman said. “The market appears to have got used to this practice by ONGC promoters, while similar issues in privately run companies would likely cause serious concern.”

“We believe minority shareholders are likely to suffer in a situation where their interests are poorly protected. Moreover, such ad-hoc cash withdrawals hurt ONGC even more since it has a poor production profile and revenues are effectively a function of their oil realisation,” it said.