ONGC on the brink of going broke

ONGC limited may soon run into losses if the government’s practice of forcing the cash rich PSU to shell out a part of its oil subsidy burden is not checked immediately

GN Bureau | September 9, 2013



The cash reserve of ONGC ltd. one of India’s most valuable companies, is depleting at a rapid pace owing to the government’s fuel subsidy-sharing mechanism. ONGC had to give discounts of Rs 12,622 crore to state-owned oil marketing companies (IOC, HPCL and BPCL) in the first quarter of 2013-14, up from Rs 12,346 crore in the previous corresponding quarter.

“ONGC is left with only about Rs 13,000 crore in cash and if we continue to subsidise at this rate, our cash reserves will go down to zero in the next two years,” ONGC chairman and managing director Sudhir Vasudeva was quoted in The Hindustan Times.

It is predicted that if the current trend continues then the company which had a cash pile of more than Rs 25,000 crore in 2010-11 will have to borrow to sustain its day-to-day operations.

Considering that ONGC’s net realisation is only $40.17/barrel against its net production cost of $40/barrel although global oil prices have hit a record high, Vasudeva said that ONGC should get at least $65/barrel against the global oil price of $100/barrel. He added that the company’s operational costs are going up and it needs to generate sufficient funds to finance its future growth.
 

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