Oil prices may boost ONGC net 30%

Rs 900cr jump in turnover likely in FY04 due to high crude prices

The spurt in international crude prices may be bad news for the country's planners, but it could not have come at a better time for the state-owned Oil and Natural Gas Corporation (ONGC), the public offer of which will hit the market on Friday.

Since the exploration major gets the import-parity price for the 23 million tonnes of crude produced by it, every $1 a barrel increase in international crude prices results in a Rs 900 crore jump in its turnover.

The average price of the Indian basket of crude (comprising Oman/Dubai crude for sour grade and Brent-dated for sweet grade in a ratio of 57:43) for this financial year is currently $27.59 a barrel, which is exactly a dollar more than last year's average price of $26.59 a barrel. This implies that ONGC's turnover, just on account of the spurt in crude prices, will go up Rs 900 crore this year.

Back-of-the-envelop calculations show that if the profit-after-tax comes to 30 per cent of the turnover, ONGC's bottomline this year will be Rs 270 crore more than last year's net profit of around Rs 10,000 crore.

The same is true for the stand-alone refineries whose refining margins have been considerably high compared to last year's. While these margins came to an average of around $3.8 a barrel last year, this year these have been averaging around $4.5 a barrel.

This could well be the reason for a stand-alone refinery like Bongaigaon Refinery and Petrochemicals Limited (BRPL) recording profits of more than Rs 200 crore in the first nine months of this financial year. In 2001-02, it had incurred a loss of Rs 199 crore and turned the corner the next year to register a profit of Rs 178 crore.

However, the price increase has hit oil marketing companies hard as on the one hand these have to bear the pressure of rising crude prices, and on the other hand they are not allowed to recover these from consumers.

Though policy-wise marketing companies are free to fix their own retail prices for petrol and diesel, it is common knowledge that the government still controls these prices.

This is the reason that despite the spurt in international prices of both crude and petroleum products, oil marketing companies have been "sounded" not to hike petrol and diesel prices till after the general elections. The same is true for liquid petroleum gas (LPG) and kerosene.

The $1 a barrel increase in the prices of crude and an 11 per cent growth in crude oil imports in the first 10 months of the current financial year is expected to push up the country's crude import bill from Rs 77,295 crore last year to Rs 88,000 crore this year.

However, the net oil import bill this fiscal may not see this kind of growth as there is an excess refining capacity in the country and product exports have increased significantly.