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Additional cess, service tax will impact ONGC by Rs 5-k cr
March, 19th 2012

Budgetary measures will impact Oil and Natural Gas Corp' ( ONGC ) by Rs 5,000 crore on PBT level (profit before tax), said Sudhir Vasudeva, chairman and managing director, ONGC in an interview to CNBC-TV18.
On Friday, while announcing the Union Budget 2012-13, Finance Minister Pranab Mukherji highlighted that the cess on crude would go up to Rs 4,500/bbl from Rs 2500. Going by last year's estimates, the company produced 27 million metric tonnes of crude and incremental cess will dent topline by Rs 4,600 and higher service tax would add another Rs 400 crore outgo.
Vasudeva also pointed that the firm needs atleast USD 55-USD 60/bbl in realization to support its capex plans for this year. However, he also remarked that Budget is not the platform for announcing fuel price hike as demanded by oil retailers. But he does hope for a price hike in petroleum products soon.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: What would you do to your net realizations, the cess now and what could be the additional payout in rupee terms?
A: In terms of rupee payout I think we will be burdened by another 4,600 or 4,700 crore. Along with that the excise duty and service duty increase, total impact on PBT would be of the order of about 5,000 crore.
Q: Could you just quantify as well in terms of the impact per barrel for ONGC?
A: It is Rs 2,000 increase per barrel. So it comes to about USD 5.5-6 per barrel.
Q: Before we talk a little bit about the impact from Budget, I want an update as well on what is happening with ONGC's bid for Gujarat Gas. It is a very high profile bid and whether ONGC has been able to take any lead position?
A: I would rather not comment on that. We keep trying on various things. We keep trying acquisitions etc, it is premature to talk about any such thing.
Q: Given the kind of subsidy sharing that you are planning or that you are expecting this year in FY13 and the cess what kind of average realizations per barrel do you expect to have this year?

A: Your guess is as good as mine. All we need is remunerated prices. My predecessors along with me absolutely have no issue on paying this in subsidy on this nominated field because the government is well within their rights. They would take this since we don't pay any profit on petroleum etc but at the same time since we support all our outlays based on our internal resources, we need to get remunerative prices. So something like between USD 55 and USD 60 is a bare minimum which we need to support our approvals.

Q: There was a large offer of sale of ONGC stock just a few days back, within a fortnight of that to make an announcement which is materially detrimental to your performance this year. Do you think it is in the spirit of corporate governance?

A: This was not only for ONGC. This is for the hydrocarbon sector.

Q: Any indications from either the oil ministry or the finance ministry that they will engage in some dialogue with ONGC about the subsidy burden sharing issue? This time as well the kind of money that has been allocated for fuel subsidies seems short at least of what happened last year. Do you fear ONGC might again have to bear a greater part of the burden and that that one-third equation?

A: I would like to take a positive interpretation of this. If the honourable Finance Minister has allocated something like 43,500 crore against 68,000 crore, it is only an indication and also the statement of the honourable Prime Minister that we have to bite the bullet and subsidy burdens have to reduce. That means part of this burden would be passed on to consumers and we will not be unduly burdened.

Q: I am sure you would also be privy to any recommendations from the oil marketing companies with regards to price increases, any headway on that? Any hope that there maybe movement even on a decontrolled commodity like petrol or perhaps on LPG and diesel?

A: I cannot comment on that. OMCs have always been asking for increase on petrol price and also they are huge under recoveries both on diesel and LPG as far as liquid fuels are concerned.

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