Loss-making ONGC JV may get package to turn profitable in 2 years

Equity infusion, capital revamp of petrochemicals producer on cards

The Centre is working on a dedicated financial package to turn the financially beleaguered ONGC Petro Additions Ltd (OPaL) profitable in the next two years, officials said.
 

Aimed at reducing the debt equity ratio of the petrochemicals producer, the package may be announced in the next few months, they said.
 

ONGC had set FY25 as the deadline for turning around the mega petrochemicals complex in Dahej, Gujarat, which has suffered major losses owing to a lopsided capital structure. The issue is under discussions with the finance ministry, which has to green light a proposed investment by ONGC into OPaL, officials at the Petroleum and Natural Gas Ministry said.
 

ONGC had earlier announced plans to do a sustainable capital restructuring of the company to reach an optimal debt-equity ratio for OPaL. Key to the capital restructuring plan is ONGC's decision to infuse Rs 18,365 crore into OPaL, approved by the ONGC board in September 2023.

 

Currently, ONGC holds a 49.36 per cent stake in OPaL, with state-owned gas major Gail holding 49.21 per cent, and Gujarat State Petrochemical Corporation (GSPC) holding the remaining 1.43 per cent. A major equity investment by ONGC will see it edging out Gail.
 

Incorporated back in 2006, the company was envisaged to use the naphtha produced by ONGC at nearby Hazira as well as rich-gas being imported at Dahej. But the OPaL's first plant was commissioned in 2017. The mega petrochemical complex is spread over 5 sq km with a capacity to produce 1.4 million tonnes of polymers and 0.5 million tonnes of chemicals, including 1,100 kilo tonnes per annum (KTPA) ethylene, and 400 KTPA propylene, among others.

 

Losses continue
 

The company's net loss stood at Rs 701.2 crore at the end of the fourth quarter (January-March) of FY24, down from Rs 1863 crore in Q4 FY23. On an annual basis, the company faced a loss of Rs 3,455.6 crore in FY24, down from Rs 4,154.4 crore in FY23.

OPaL’s accumulated losses touched Rs 13,000.3 crore as on March 31, 2023, PTI had reported.
 

In FY24, the company’s revenue has continued to be hit owing to weak prices because of lower global demand, continuing geopolitical issues and heavy dumping of polymers products in India from the Middle East at very low prices, a recent report by Crisil Ratings said. Case in point, FY24 revenue stood at Rs 14,307.3 crore, slightly lower than the Rs 14,593 crore notched up by the company in the previous year.
 

“Operating profitability will remain vulnerable to volatility in spread between the prices of feedstock (naphtha and C2+ components) and finished products,” Crisil said.
 

The report also pointed out that the equity infusion will improve the company's debt protection metrics and reduce interest expenses for OPaL from debt reduction and conversion of CCDs to equity.
 

In the near term, the company has to bear the major cost of existing from the special economic zone (SEZ) it is currently in. Since sales are mainly undertaken in the domestic market, the company is exiting the SEZ, officials have said. The move is expected to be finalised soon as both the assessment of bill of entries by custom authority, and the denotification process by Dahej SEZ Ltd, are under progress.