Managing the finances of the staterun Oil & Natural Gas Corporation or ONGC is not easy. There are fait accompli expenses.
The government, for instance, makes ONGC hand over a large chunk of its earnings to oil marketing companies, or OMCs. The logic: oil and gas producers such as ONGC gain from higher crude prices, and hence should help the OMCs, which have to sell diesel, cooking gas and kerosene at state-determined prices well below the cost of production.
So, in 2010/11, when crude oil prices surged and ONGC's turnover rose to Rs 69,532 crore, it had to hand over Rs 24,892 crore to the OMCs.
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But all this has not stopped finance director D.K. Sarraf from aiming high. Sarraf wins the award for the best CFO of a public sector unit.
In 2010/11, ONGC increased its total production of oil and gas by 6.5 per cent over the previous year. "Almost 80 per cent of our fields have entered the declining phase," says Sarraf. "But by taking proactive steps in the past seven to eight years, we have prevented the expected fall in base production."
ONGC has also monetised its Tripura gas discovery, which was underused for nearly two decades because there was not much industrial demand in that corner of the country. In December 2010, it commissioned a gas-based 363.3 MW power unit in Tripura, and will double this capacity by March next year. It is also investing in two joint venture downstream projects, in Gujarat and Karnataka.
There are no guaranteed earnings for ONGC's investors, because of the oil subsidy burden it shoulders. "It is ad hoc. We are ready to share the burden, but there should be a standard formula," says Sarraf. Yet, for the financial year 2010/11, ONGC paid a total dividend of 350 per cent.
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