According to media reports, the panel has also prescribed that the subsidy burden on OIL and Natural Gas Corporation ( ONGC ) and on Oil India (OIL) will be capped at 50 percent of crude oil prices at USD 120/barrel irrespective of the quantum of losses suffered by oil marketing companies (OMCs).
Speaking to CNBC-TV18 on these recommendations, ONGC CMD Sudhir Vasudeva said with every rupee hike in diesel price, under-recoveries will reduce by about Rs 2,600 crore. If diesel price is raised by Rs 5/litre then it would lead to Rs 22,000 crore reduction in the company's under-recoveries. However, he doubts if the government has the wherewithal to go ahead with it especialy when general elections are nearing.
Further he added that capping subsidy burden at 50 percent of crude oil price at USD 120 a barrel and above is not as per their expectations, but it is better than the what they are currently shelling out as subsidy.
Meanwhile, ONGC's Q2 subsidy burden is expected to be at over Rs 13,000 crore and the company is in talks with ministries to reduce it, Vasudeva added.
Below is the edited transcript of Sudhir Vasudeva's interview with CNBC-TV18
Q: There have been a couple of media reports suggesting that the Kirit Parikh committee has prescribed that the subsidy burden on Oil and Natural Gas Corporation (ONGC) and on Oil India Ltd (OIL) will be capped at 50 percent of the crude oil prices at USD 120/bbl irrespective of the quantum of losses that are suffered by the oil marketing companies (OMCs) what would your view be on that?
A: I have also read the report. It says that at USD 80/bbl it would be about 40 percent and it will increase to 50 percent. This means that at USD 100/bbl, we get only about USD 55/barrel and we will have to give USD 45/barrel in subsidy. Although it has not as per our expectations, but it is better than what we have been getting. In fact we have been demanding that we should get in excess of USD 60/barrel.
The proposal we had made to Kirit Parikh committee also was that upto USD 60/bbl. We should be allowed to retain 100 percent and beyond that we are willing to share upto 75 percent of incremental with the government and beyond 100 percent up to 90 percent with the government and we will retain only 10 percent. So, from that view point it is slightly less, but it is certainly better. We got only USD 47/barrel last year and Q1 we got only USD 40.17/barrel. If we compare with that then this is certainly a step better than that.
Q: We now have confirmed information that GAIL is going to be excluded from the subsidy in the second half. So do you see an immediate actual rise in your burden?
A: The subsidy burden that has been indicated to us for Q2 is about Rs 13,700 crore. It is more than what we paid in Q1. What I have read from statement of Mr Tripathi is that probably GAIL's burden for this year is capped at Rs 1,400 crore and they paid something like Rs 2,600 crore last year. So, we will have to see as to how this will pan out and whether it will be passed on to ONGC and Oil India or this will be taken by the government of India.
Q: If the diesel prices are hiked as the reports are suggesting would that mean that you would have no problem even sharing that 50-60 percent of the balanced subsidy?
A: Everything has to be made clear. Today, the recommendations of Kirit Parikh committee are coming in bits and pieces. If they are suggesting that prices should be increased by Rs 5/litre - every rupee increase in diesel price reduces under-recovery by about Rs 2,600 crore. So, a Rs 5/litre means about Rs 22,000 crore will be the reduction in under-recovery. Any increase is certainly better, but it all depends upon whether we have the political will to pass on this burden to the customers at this sensitive time.
On October 30, 2013, Oil and Natural Gas Corporation closed at Rs 288.65, down Rs 1.85, or 0.64 percent. The 52-week high of the share was Rs 354.10 and the 52-week low was Rs 234.40.
The company's trailing 12-month (TTM) EPS was at Rs 22.05 per share as per the quarter ended June 2013. The stock's price-to-earnings (P/E) ratio was 13.09. The latest book value of the company is Rs 145.47 per share. At current value, the price-to-book value of the company was 1.98.
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