SOARING crude oil prices did not help India’s largest oil producer as expected, as ONGC fell short of crossing the Rs 20,000 crore annual profit mark in FY08. ONGC’s fourth quarter profits slipped 2% below year ago levels to Rs 2,627 crore. A huge spurt in employee costs, subsidy burden and heavy write-offs were the culprits. The oil major reported consolidated profits of Rs 19,872 crore on sales of Rs 1,01,835 crore during the year ended March 2008.
The company provided nearly Rs 2,000 crore for the pay revision including gratuity thereon, which was pending since January 2007. “We have made a provision of Rs 1,050 crore towards the arrears of employees on account of pay committee recommendations. Also, Rs 850 crore has been earmarked towards gratuity liabilities. This has impacted profit, as 80% of the spending would have gone to the topline if pay committee recommendations were not there,” ONGC director finance DK Sarraf said while addressing a post result conference in New Delhi.
“There is lot of confusion due to ONGC’s changes in accounting policy regarding employee costs. However, one thing is for sure that their net realisation has fallen to around $52,” an analyst working with an international investment bank commented.
In the same quarter, the company wrote off Rs 610.5 crore spent over last three years on a deep-sea oil block, on account of abundant prudence as the block needed more time for completion of appraisal programme. This oil block in the Krishna-Godavari (KG) basin was taken over in 2005 from Cairn for Rs 371 crore. ONGC has found in-place hydrocarbon reserves in this block last year making it India’s first ultra-deep water discovery at 2,841 metres of water depth. The conceptual development plan for this field is underway and appraisal programme is expected to begin in October this year.
The subsidy burden proved to be the other villain. ONGC’s subsidy burden during the quarter shot up 82% to Rs 8,473 crore. This took the total discount offered to the oil marketing companies during the entire year 29% higher to Rs 22,001 crore. “There is a lot of uncertainty because of the ad hoc subsidy mechanism. I would request the government to move to ad-valorem cess instead of the present ad-hoc mechanism,” said ONGC chairman and managing director Mr RS Sharma.
The company witnessed a sharp rise in its other expenditure, which rose to 24.6% of net sales from 18% in corresponding quarter of previous year. This was mainly on account of increase in hiring cost for rigs, floaters and other materials.
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