ONGC lost Rs 4,745 cr on gas sales in 2008-09

State-owned Oil and Natural Gas Corp (ONGC) lost a whooping Rs 4,745 crore in revenues on selling natural gas at a rate below production cost in 2008-09.

ONGC and state explorer Oil India Ltd (OIL) sell gas at government-controlled rates, called APM (Administered Price Mechanism) price. The APM price for ONGC currently is Rs 3,200 per thousand cubic meters (or Rs 3.2 per unit).

"In 2008-09, our cost of production was Rs 5.87 per cubic meters. Against this our actual price realisation was just Rs 3.191 per unit," a top ONGC official said.

ONGC's total revenue loss on the 17.71 billion cubic meters gas it sold at APM rates last fiscal came to Rs 4,745 crore.

"The APM rates at Rs 3.2 (or $1.79 per million British thermal unit) were not even half of the presumed market rate," he said, adding "We will not breakeven on gas sales, even after the proposed increase in APM price is implemented".

The Oil Ministry has circulated a draft Cabinet note for raising price of gas under APM to Rs 4,142 per thousand cubic meters ($2.32 per mmBtu). APM rates were last revised in June 2005 and the hike proposed is based on Tariff Commission's recommendation that subsequently went into the issue.

"Our breakeven without including any return on capital investment is Rs 4,559 per thousand cubic meters ($2.55 per mmBtu) and after considering a return on capital as suggested by the Traffic Commission, it comes to Rs 5,870 per thousand cubic meters ($3.3 per mmBtu)," he added.

Sources said the proposed APM gas prices are in line with the Commission's recommendation, which in 2005 suggested a producer price of Rs 3,600 per thousand cubic meters to ONGC and Rs 4,040 per thousand cubic meters to OIL.

Above this, the price would change by Rs 55 per thousand cubic metre for every 10 points change in Wholesale Price Index (WPI)

Based on the rise in WPI, the producer price currently comes to Rs 3,875 for ONGC and Rs 4,315 for OIL.

The rates proposed do not include royalty paid by these firms to the government.

APM price or the gas produced from fields given to ONGC and OIL on nomination basis, is proposed to be raised in stages to Rs 7,500 per thousand cubic meters or $4.2 per million British thermal unit by 2013, sources said.

Gas produced from new fields would be allowed to be sold at the market price.

The proposal would be placed before the Cabinet after comments from ministries like finance, power and fertiliser are obtained, he said.

Sources said the Cabinet note based on the recommendation of the Commission, proposes that ONGC be paid Rs 3,875 per thousand cubic meters for the gas it produces while Rs 4,315 would be paid to OIL. Consumer price would be 10 per cent higher than this.

The differentials between the producer and consumer price would be invested by the companies in new technologies.