ONGC Internship Project Analysis of Pricing & Consolidation
1. Summer Internship Project
A study on Consolidation Of ONGC Ltd.&
Group and the Pricing Mechanism at
ONGC Ltd.
Submitted in partial fulfillment of PGDM program
2014-16
Submitted by
ATUL CHANDRAN
22/038
Corporate Mentor Faculty Mentor
Name Name
Designation, Company Designation
Apeejay School of Management
New Delhi
June 2015
2. CONTENTS
1. Certificate
2. Acknowledgement
3. Executive Summary
4. Chapter1(Area of internship and learning objective)
5. Chapter2(Company Profile)
6. Chapter3(Job Description and Functional Profile)
7. Chapter4(Learning Experience and Insight Gained)
8. Chapter5(Recommendations and Conclusion)
9. Bibliography
10. Annexure
3. CERTIFICATE
This is to certify that I Atul Chandran Roll No. 21/112 have carried out my Summer internship
in Edu comp Solutions Ltd in the area Business HR. It is also certified that the work done by me
is original with due references of sources, and has not been submitted elsewhere for the award of
any diploma or degree.
_____________________
Signature
Name of the Student
Date : _________________________
Countersigned by Faculty Mentor
4. ACKNOWLEDGEMENT
Words put on paper are mere ink marks, but when they have a purpose there exist a thought
behind them. I too have a purpose to express my gratitude towards those individuals without
whose guidance this project would not have been possible
The submission of this project report gives me an opportunity to convey my
heartfelt thanks to Oil and Natural Gas Corporation Ltd. and all those who have
helped me to reach a stage where I have immense confidence to launch my carrier.
I take this opportunity to express my gratitude to MrNiraj N Kumarfor guiding
me throughout the project and making me learn several new concepts, which
would have been impossible otherwise.
I would also like to thank every person who have contributed to this project and
have encouraged me at all levels during the project.
5. PREFACE
As a part of my MBA programme, I was asked to undergo 60 days summer training in
any organization, to give the exposure to practical management and to get familiar with the
various activities taking place in the organization.
I got an opportunity to undergo my summer training in the Delhi Office of a most reputed
organization – A Maharatna Company, “ONGC”, where I was allowed to work on the project
titled “A CRITICAL STUDY ONANALYSIS AND INTERPRETATION OF
CONSOLIDATION OF FINANCIAL STATEMENTS (SUBSIDIARIES)”.
The main activity of ONGC LTD. is exploration and exploitation of hydrocarbons and it requires
the technical expertise of experts and various equipments required to do the same.
In this project, an attempt has been made to study the working capital of ONGC LTD., which
constitutes working capital management, debtor’s management, cash management and inventory
management. At the end, recommendations have been given to improve the working capital
position. The salient features of this report are the comprehensive coverage and latest
information about the topic of the study. Financial data of last five years have been taken and the
Cost is evaluated and interpreted.
6. EXECUTIVE SUMMARY
The project undertaken at ONGCLtd entitles the work done during training period. The work
includes Consolidation of financial statements of ONGC and Its Subsidiaries for the year ending
2014 and the study of Pricing Mechanism of ONGC ltd
During training was associated with the Corporate department of ONGC Ltd. The corporate
department of ONGC Ltd handles the consolidation of financial statements of ONGC &Group.It
also monitors the Sales revenue pattern of crude oil , natural gas and other products.
Traininghere was full of learning experiences and exposure. I gained practical knowledge of
what we studied in theory; my corporate mentor helped me gain both subject and general life
related knowledge. At the beginning I studied the background of the company and then I was
been enlightened about the pricing mechanism of ONGC Ltd and how this mechanism is affected
by various factors in the economy and also how pricing affects the economy. I was been given
the financial data to study the pattern of pricing from past 10 years , the formulas used to
calculate the price of crude oil and the impact of factors affecting crude pricing
The pricing of crude oil depends on various factors such as:
Offshore crude and Onshore crude (based on their distribution channel )
OPEC
OPEC can affect the price of crude oil, by increasing or reducing production among its member
countries
Supply & Demand
Global oil inventories balance supply and demand. If production exceeds demand, excess
supplies can be stored. When consumption exceeds demand, inventories can be tapped to meet
the incremental demand, and the relationship between oil prices and oil inventories allows for
corrections in either direction.
Restrictive legislation
As the majority of the world’s oil reserves and production are controlled by government-run
companies, the global oil market is heavily politicized and its functioning is far from that of a
competitive market.
Exchange value of dollar
7. Oil is traded and sold internationally in US dollars. Dollar depreciation generally tends to
increase oil demand and raise the price of oil.
Subsidies &Under recoveries
All these factors affect the pricing mechanism of crude oil supplied by ONGC and thereby
affecting the price of petroleum in our country. It is very important to study the pattern of each of
these factors to set the present petrol prices and as well as to observe the future pricing trend.
I worked on this mechanism for 4 weeks and made the 1st half portion of my report in the
respective duration. In the next 4 weeks I was briefed about the Consolidation process of ONGC
LTD & Group. I was been told about the various subsidiaries , associates and JV’s ( Joint
Ventures), their proportionate share in ONGC and how their financial statements are being
complied into the financial statements of ONGC Ltd. In the last two weeks of my training I was
briefed about the trend of financial performance ratios .
My learning here enlightened my knowledge, and gave me a reality check of corporate world.
My learning’s at here in brief includes, in-depth understanding of the pricing mechanism of
crude oil, how this mechanism affect our economy, work under pressure, importance of record
keeping, meeting challenges , understanding of consolidation process of ONGC & Group.
8. Chapter-1
Area of Internship and Learning Objectives
Area of internship
I was been assigned with two projects during my internship program.
1- Pricing mechanism of ONGC Ltd – in this I was briefed about the how prices of crude oil
were set
2- Consolidation of financial statements of ONGC Ltd & Group in which I had to
consolidate the financial data of the various subsidiaries of Ongcltd .
Research papers
9. Learning objective
The project objective is to study the consolidation of financial statements of Ongc’
group and to study the pricing mechanism at Ongc. The content of the project was
very wide and versatile and it helped me gain the knowledge of the working of the
financial department of ongc
10. Chapter -2
Profile of the organisation
OIL AND NATURAL GAS Industry- An Overview
OIL AND NATURAL GAS CORPORATION LTD, (ONGC) today is the premier Indian
industry effectively participating in efficient implementation of both the economic as well
as the social mission of a national industry. Its growth has been one of consistent
stability and ascending productivity, matching international performance makers,
through innovative approach and participative management.
ONGC operates in the upstream sector of the petroleum industry on the
unstructured premises of accepting the intellectual software’s, geological thoughts and
perceptions of the petroleum geoscientists, as its basic raw materials until today, there
has been no tool or technique that can directly oil with in the earth crust, consequently,
oil exploration has over been a highly probabilistic cannot be defined within the confine
of the scales and measures of the conventional engineering. Input & Output ratios. In oil
explorations activity, inputs are deterministic, but output is probabilistic. It is a high
reward business.
Further , oil exploration and production activities are multi-disciplinary, and the
industrial constantly operates under a syndrome of high-value high technology(of high
rate of obsolescence ) that mostly create compulsions for massive investment in
exploration increases exponentially because the ‘New Finds’ of oil deposits
progressively become more and more scarce and recovery from old fields become
costlier.
Impressions often are focused in the form that ONGC is an Island of prosperity,
and thus is, expected to provide high measures of various subsidies to all in various
types of industries in the nationals as well as the private sector. Willing or otherwise
ONGC has been providing such ‘support’ services to many Indian Industries, often at
the cost of depletions of its logically earned income & profits.
ONGC is a performing national industry constantly achieving commanding
heights of performance its attitudinal orientation in TO DO BETTERTHE THINGS
BEING DONE WELL. In this document, its structural fabrics management perceptions
practices and performance have been briefly profited .ONGC assures the nation than it
business –like support of the govt. its main aim is to accelerate the progress of the
Indian petroleum industry that would lead to the consolidation of the Indian Energy
Security.
11. Exploration and Production (E&P)
The growing demand for crude oil and gas in the country and policy initiative of
Government of India towards increased E&P activity, have given a great impetus to the
Indian E&P industry raising hopes of increased exploration.
Crude Oil & Gas Production
Oil and Natural Gas Corporation Limited (ONGC) and Oil India Ltd. (OIL), the two
National Oil Companies (NOCs) and private and joint-venture companies are engaged
in the exploration and production (E&P) of oil and natural gas in the country.
Crude oil production for the period April-January 2009 stood at 28.090 Million Metric
Tones (MMT) (Provisional) with an achievement percentage of 94.6 per cent. Natural
gas production for the period April-January 2009 stood at 27577 Million Cubic Meters
(MCM) (Provisional) with an achievement percentage of 92.5 per cent.
Consequent upon liberalization in petroleum sector, Govt. of India is encouraging
participation of foreign and Indian companies in the exploration and development
activities to supplement the efforts of national oil companies to narrow the gap
betweensupply and demand. A number of contracts have been awarded to both foreign
and Indian companies for exploration and development of fields on production sharing
basis.
Domestic Oil and Gas Production
Crude oil production from the deepwater block D6 in KG Basin began in the month of
September 2008. The block promises to yield a peak production of around 34,000
barrels per day next year and its life is projected to be 11 years.
The Improved Oil Recovery and Enhanced Oil Recovery projects of ONGC are under
operation in its 15 largest fields. The cumulative incremental oil gain up to March 2008
has been of the order of 39.8 million tones. ONGC expects to extract additional
production of 14 million tones of oil and 16 BCM of gas from its marginal fields during
the current Plan period.
12. Natural Gas
Natural Gas has emerged as one of the most preferred fuel due to its environmentally
benign nature, greater efficiency and cost effectiveness. At present, the main producers
of natural gas are Oil and Natural Gas Corporation Limited (ONGC), Oil India Limited
(OIL) and the Joint Ventures of PannaMukta& Tapti, and Ravva. Out of the total
production of around 96 MMSCMD, after internal consumption, LPG extraction and
unavoidable flaring, around 73 MMSCMD is available for sale to various consumers. In
addition, around 7 MMTPA of re-gasified LNG (about 23 MMSCMD) is also being
supplied to domestic consumers.
Gas produced by ONGC and OIL from the existing nominated blocks is sold at
administered prices fixed by the Government. As against a total allocation of 150
MMSCMD of gas, actual supply under APM is presently around 53 MMSCMD.
New Exploration Licensing Policy (NELP)
Exploration and Production (E&P) activities in the country have been intensified with the
New Exploration Licensing Policy (NELP). NELP provides an international class fiscal
and contract framework for Exploration and Production of Hydrocarbons. Six bidding
rounds have been successfully undertaken spanning 2000-2007. A total of 162 blocks
have been awarded. Under NELP, 58 oil and gas discoveries have been made in 17
exploration blocks. Under the NELP-VII Round, the Ministry had received 181 bids for
45 exploration blocks. During 2008, the government decided to award 44 blocks to the
winning bidders. With this, the total number of blocks brought under exploration
exceeded 200.
13. General Information About The Company
Name Of The Company Oil And Natural Gas Corporation Ltd.
Company Logo
Chairman & Managing Director D K Sarraf
Type Public Sector Undertaking
Website www.ongcindia.com
Sector(S) That The Company Is Engaged In
Exploration And Production
Infrastructure And Facilities
Operates with 27 Seismic crews,
manages 240 onshore production
installations, 202 offshore installations,
77 drilling (plus 44 hired) and 58 work-
over rigs (plus 30 hired), owns and
operates more than 26,598 kilometers
of pipeline in India, including 4,500
kilometers of sub-sea pipelines.
Adopted Best-in-class business
practices for modernization, expansion
and integration of all Infocom systems
Frontiers of Technology
State-of-the-art seismic data
acquisition, processing and
interpretation facilities
Uses one of the Top Ten Virtual
Reality Interpretation facilities in the
world
Alliances with Transocean,
Schlumberger, Halliburton, Baker
Hughes, IPR, Petrobras, Norsk, ENI
and Shell One of the biggest ERP
implementations in the Asia
Human Resources 33,911 ONGCians (as on 31st March, 2014)
Competitors
Reliance Industries
Cairn energy
Profile of the Company
14. Women Employees About 6.37 % of ONGC's workforce
ONGC LEGACY
The dream of Pandit Jawaharlal Nehru, the first Prime Minister of independent India, to
create an indigenous exploration
and production organization in the country was a reflection of his faith in the nation’s
scientific and technical community.
Ongc’s scientists and engineers have lived up to that faith, making it one of the leading
exploration and production ofhydrocarbon companies in the world today
15. VISION AND MISSION
ONGC is on a mission to find more energy and to deliver energy for National
growth
To be global leader in integrated energy business through sustainable growth,
knowledge excellence and exemplary governance practices.
World Class
Dedicated to excellence by leveraging competitive advantages in R&D and technology
with involved people.
Imbibe high standards of business ethics and organizational values.
Abiding commitment to safety, health and environment to enrich quality of community
life.
Foster a culture of trust, openness and mutual concern to make working a stimulating
and challenging experience for our people.
Strive for customer delight through quality products and services.
Integrated In Energy Business
Focus on domestic and international oil and gas exploration and production business
opportunities.
Provide value linkages in other sectors of energy business.
Create growth opportunities and maximize shareholder value.
Dominant Indian Leadership
Retain dominant position in Indian petroleum sector and enhance India's energy
availability.
17. LIST OF PRODUCTS BY ONGC
1) CRUDE OIL
2) GAS
3) LPG
4) C2-C3
5) SKO
6) NAPTHA
7) LSHS
8) ATF
9) SULPHUR
10) HSD
11) MOTOR SPIRITS
12) OTHERS(LDO/MTO)
18. GLOBAL RANKING
ONGC is ranked as the Top Energy Company in India, Fifth in Asia and 21st globally
as per Platts Top 250 Global Energy Rankings; Maintains place as World's Third
ranked E&P Company in the list.
Ranked 21st among global Oil and Gas Operations industry in Forbes Global 2000 list of
the World's biggest companies for 2014; Ranked 176 in the overall list - based on Sales
(US$ 29.6 billion), Profits (US$ 4.5 billion), Assets (US$ 53.8 billion) and Market Value
(US$ 46.4 billion).
Ranked 26 in 'Transparency in Corporate Reporting' among the world's 124 largest listed
companies published by Transparency International (Up from 39 in 2012)
Ranked 217 in the Newsweek Green Rankings World's Greenest Companies 2014 (up
from 386 in 2012)
19. STP
Segment Corporates, countries, individuals looking to fulfill energy needs
Target Group
Enterprises looking for energy for production, people for petrol diesel for
vehicles and domestic uses
Positioning The future of India's energy
SWOT
Strength
1.Indias largest crude oil and natural gas producer
2.Strong brand name
3.High profit making
4.Has over 40,000 employees
5.It produces about 30% of India's crude oil requirement
6.Contributes 77% of India's crude oil production and 81% of India's
natural gas production
7.Commemorative Coin set was released to mark 50 Years of ONGC
Weakness
1.Legal issues
2.Employee management
3.Bureaucracy
4.Human rights and rehabilitation issues
Opportunity
1.Increasing fuel/oil prices
2.Increasing natural gas market
3.More oil well discoveries
4.Expand export market
Threats
1.Government regulations
2.High Competition
3.Hybrid and electric cars in the market
Competition
21. Competitive Strength
All crudes are sweet and most (76%) are light, with sulphur percentage ranging from 0.02-0.10,
API gravity range 26°-46° and hence attract a premium in the market.
Strong intellectual property base, information, knowledge, skills and experience
Maximum number of Exploration Licenses, including competitive NELP rounds. ONGC has
bagged 121 of the 235 Blocks (more than 50%) awarded in the 8 rounds of NELP.
ONGC owns and operates more than 26,600 kilometers of pipelines in India, including sub-sea
pipelines. No other company in India operates even 50 per cent of this route length.
Key Players
Indian Oil
Reliance
Bharat Petroleum
HP
ONGC
BP
BG Group
Gaz de France
Chevron
25. Human Resources
ONGC has vast pool of skilled and talented professionals – the most valuable asset for the
company. 32,909 ONGCians (as on 31st March, 2012) dedicate themselves for the excellent
performance of the company. ONGC extends several welfare benefits to the employees and their
families by way of comprehensive medical care, education, housing and social security.
26. Perspective Plan 2030 (PP2030)
PP2030 charts the roadmap for ONGC's growth over the next two decades. It aims to
double ONGC's production over the plan period with 4-5 per cent growth against the
present growth rate of 2 percent. In physical terms the aspirations under Perspective Plan
2030 aims for -
Production of 130 mmtoe of oil and oil equivalent gas (O + OEG) per year and
accretion of over 1,300 mmtoe of proven reserves.
Grow ONGC Videsh Limited (OVL) six fold to 60 mmtoe of international O+OEG
production per year by 2030.
More than 20 mmtoe of O+OEG production per year in India coming from new
unconventional sources such as shale gas, CBM, deepwater and HPHT (High Pressure
& High Temperature) reservoirs.
Over 6.5 GW power generation from nuclear, solar and wind and 9 MTPA of LNG.
Scaling up refining capacity to over 20 MMTPA and targeted investments to capture
downstream integration in petrochemicals.
27. Corporate Social Responsibility
In recognition of its role as a 'responsible leader', ONGC continues its quest to make positive,
tangible difference in the lives of the vulnerable and disadvantaged. With a business paradigm
that is based on an interconnected vision - of people's welfare, societal growth and environmental
conservation, ONGC in 2011-12 continued to cater to the developmental needs across the
following focus areas:
Education including vocational courses;
Health Care;
Entrepreneurship (self-help & livelihood generation) schemes;
Infrastructure support roads, bridges, Schools, hospitals in around our operational areas
Environment protection, ecological conservation, promotion;
Protection of heritage sites, UNESCO heritage monuments etc.;
Promotion of artisans, craftsman, musicians, artists etc. for preservation of heritage, art &
culture;
Women's empowerment, girl child development, gender sensitive projects;
Water management including ground water recharge;
Initiatives for physically and mentally challenged;
Sponsorship of seminars, conferences, workshops etc. and
Promoting sports/sports persons; supporting agencies promoting sports / sports persons.
The Oil and Natural Gas Corporation Ltd, Rajahmundry Asset, has roped in Tata Institute of
Social Sciences (TISS) to help formulate and facilitate composite corporate social
responsibility initiatives.
ONGC adopts JantarMantar under Swachh Bharat Abhiyan ... Under the mission, ONGC has
plans to take up various initiatives ... over 13 states during the current financial year at a cost of
Rs 100 crores
The Oil and Natural Gas Corporation (ONGC), launched a major cleaning campaign in all its
work centres on Gandhi Jayanti under the Swachh Bharat Abhiyan.
The ONGC has allocated Rs 100 crore for this programme, which has been named as
SwachhVidyalayaAbhiyan by ONGC officials.
28. Achievement & Awards
ONGC improves Transparency ranking to 26th, up 13 notches
November 11,2014
ONGC is Top Energy Company of India; 5th in Asia, 21st globally: Platts
October 29,2014
ONGC climbs up to Second position on the BT-500 India's Most Valuable Companies list
October 28,2014
ONGC adjudged Exploration & Production Company of the year – PetroFed Awards
September 09,2014
Highest sports award to ONGC – receives “RashtriyaKhelProtsahanPuruskar” from President of India
August 30,2014
ONGC is India’s “Most Valuable” PSU
August 26,2014
ONGC Videsh is Most Internationalized Indian Firm second time in a row
August 07,2014
ONGC amongst world’s greenest companies
June 12,2014
ONGC bags Dun & Bradstreet Corporate Excellence Award - 2014
May 30,2014
ONGC Academy conferred with Golden Peacock National Training Award - 2014
May 28,2014
29. Chapter -3
Job and functional profile
Reporting relationships:
As an intern I was reporting to Mr. Rakesh(Sr F&AO) and MrVikas(Sr F&AO) who very
patiently guided and generously shared some of his knowledge of both subject and managerial
skills related with me and also catered to any quarries related to the processes or of the
information regarding subjects. Mr. Rakesh(Sr F&AO) also briefed me regarding the
information sources and also helped me in maintaining good relations with other finance team
members.I was also helped by Mr. Vikas (Sr F&AO) in order to gain some important extra
knowledge about the working culture of corporate importance of practical exposure and
experience. Mr. Rakesh (Sr F&AO) also suggested some more career enhancing courses and
shared his experience which helped to understand work better.
Work environment:
The work environment was very friendly and positive. Employees were very supportive and
guided very nicely in solving any relevant problem whenever asked. They were friendly and
also professional and employees here gave adequate opportunity to discuss any query or any
industry related question or future prospects in the concerned area.
Job challenges:
It was all new for me and the employees around me were the ones who have touched the highest
points of this field i.e. almost all of them were Chartered Accountants and Company secretary
who were technically and experience wise very superior to me so sometimes I felt like a “fish
out of water”.
The second challenge was retrieval of relevant data regarding the analysis part. Since I was an
intern here so management not always felt comfortable to give me the confidential data of the
organization such as balance sheet, financial statements etc. so I had to every time run for
approvals form my superiors as well as always had to convince the respective person to hand
over me a copy of data which would be as safe as it would have been with them.
30. Chapter -4
Learning Experience and the Insights Gained
Crude Oil Pricing Mechanism In India
Pricing in the energy sector have long been under the administered regime so as to keep prices of
final goods low. There has been great resistance towards price increases due to economic and
political reasons. However, over a period of time, continuing with this practice seemed
unsustainable as the burden of energy subsidies was not only undermining India’s fiscal
sustainability but also reducing energy security through investment shortfalls. It also has led to
distortion and inefficiency in the use of different sources of energy. The government has taken
serious steps to deregulate the energy price from an Administered Price Mechanism (APM)
regime.
Petroleum subsidies have become a major component of Government expenditure in the
recent past. During the year 2012-13, the total under recovery on Petroleum products
reached a level of Rs.161,029crore. Even though the Government has taken various
measures such as capping of subsidized domestic LPG cylinders to 12 per annum. With
significant increase in refining capacity in India in the recent years, the country’s
dependence on imported petroleum products has come down significantly and the country
has gradually become a net exporter of petroleum products including exports of Petrol
and Diesel mainly by private and standalone refineries. Nonetheless, the country’s
dependence on imports continues to grow as almost 77% of crude oil in India, on
consumption basis, is imported. It is in this context that the rationale for continuing to fix
refinery gate price (RGP) of sensitive petroleum products on Import Parity Price (IPP)/
Trade Parity Price (TPP) basis, which assumes that the product is imported, needed a
review.
31. THE PRESENT CONTEXT
Fossil fuels, especially petroleum products, occupy a pre-eminent position in all
economies of the world. As a key primary source of energy, they necessitate involvement
of the Government in pricing, production and distribution. Energy security continues to
be of concern to India as thecountry faces huge challenges in meeting its energy needs.
The country depends on imports of crude oil to meet more than 77% of its petroleum
products requirement. It is therefore subject to the vagaries of a volatile international
market for crude and petroleum products. Subsidies on petroleum products have become
a major component of government’s expenditure in the recent past. During the year 2013-
14 the this subsidy at Rs. 96,880 crore accounted for 38% of the aggregate
governmentsubsidies of Rs. 2,57,654 crore. This did not include the contribution of Rs.
60,000 crore for the same period provided to the oil marketing companies (OMCs) by the
upstream oil companies. The overall energy subsidy was therefore even larger.With the
objective of moving towards market determined prices for petroleum products,
government announced dis-mantling of APM effective 01.04.2002 (except for providing
a fixed subsidy on PDS Kerosene and domestic LPG during the next 3 – 5 years).
However, the same could not be implemented and post May 2004, the government re-
started controlling the prices of major petroleum products i.e. Petrol, Diesel, PDS
Kerosene and Domestic LPG.
High levels of under-recoveries of OMCs in the face of unprecedented, sharp increases
in international oil prices coupled with ad-hoc and inadequate increases in the domestic
prices of Petrol (decontrolled with effect from 26.6.10), Diesel, PDS Kerosene and
32. Domestic LPG have put considerable pressure on the finances of the OMCs, the upstream
oil companies and the Government
Major marker/benchmark crude to which crude price of various other
crude are linked:
• Brent from North Sea
• WTI from USA
• Dubai from Arab Gulf
• Tapis from Malaysia
• Bonny Light from Nigeria
33. OPEC
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent
intergovernmental organization, currently consisting of 12 oil producing and exporting countries,
spread across three continents America, Asia and Africa. The members are Algeria, Angola,
Ecuador, the Islamic Republic of Iran, Iraq, Kuwait, the Socialist People’s Libyan Arab
Jamahiriya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates & Venezuela.
These countries have a population of more than 380 million and for nearly all of them, oil is the
main marketable commodity and foreign exchange earner. Thus, for these countries, oil is the
vital key to development – economic, social and political. Their oil revenues are used not only to
expand their economic and industrial base, but also to provide their people with jobs, education,
health care and a decent standard of living.
The organization’s principal objectives are:
1. To co-ordinate and unify the petroleum policies of the Member Countries and to determine the
best means for safeguarding their individual and collective interests;
2. To seek ways and means of ensuring the stabilization of prices in international oil markets,
with a view to eliminating harmful and unnecessary fluctuations; and
3. To provide an efficient economic and regular supply of petroleum to consuming nations and a
fair return on capital to those investing in the petroleum industry.
How does OPEC oil production affect oil prices?
In today's complex global markets, the price of crude oil is set by movements on the three major
international petroleum exchanges, all of which have their own Web sites featuring information
about oil prices. They are the New York Mercantile Exchange (NYMEX,
http://www.nymex.com), the International Petroleum Exchange in London (IPE,
http://www.ipe.uk.com) and the Singapore International Monetary Exchange (SIMEX,
http://www.simex.com.sg).
34. The Oil and Energy Ministers of the OPEC Member Countries meet at least twice a year to co-
ordinate their oil production policies in light of the market fundamentals, ie, the likely future
balance between supply and demand.
.The impact of OPEC output decisions on crude oil prices should be considered separately from
the issue of changes in the final prices of oil products, such as gasoline or heating oil. There are
many factors that influence the prices paid by end consumers for oil products. In some countries
taxes comprise over 60 per cent of the final gasoline price paid by consumers, so even a major
change in the price of crude oil might have only a minor impact on consumer prices.
OPEC PRICE BASKET
Currently, the retail selling prices of only 3 products i.e. Diesel (retail sales), PDS
Kerosene and Subsidized Domestic LPG are regulated by the Government. The prices of
all other petroleum products including Petrol, are market determined. It was decided ‘in
principle’ to deregulate the price of Diesel also in June 2010 which could not be
implemented except that effective 18th January 2013, the government has allowed the
35. OMCs to (i) increase the retail selling price of Diesel by 40-50 paisa per litre per month,
& (ii) sale Diesel to bulk consumers at non-subsidized market determined price.
However, due to high crude oil prices prevailing in the international market
PRICE TREND OF INDIAN BASKET OF CRUDE OIL
In this scenario, even after the measures taken by the Government (such as capping of
Subsidized Domestic LPG cylinders to 9 per annum, deregulation of Diesel price for bulk
consumers and small monthly increases in retail price of Diesel), the under-recoveries
may again reach very high levels
Crude oil pricing mechanism in India is segregated into following time periods :admi
Administered Price Mechanism (APM) period which prevailed in March 1998 . According to
APM crude price were fixed by Government on cost plus basis.
In Nov’97 Govt. decided to dismantle APM and Introduced Market Driven Pricing Mechanism
(MDPM).According to which the crude price linked to FOB price of imported crude.
As per Govt. Notification of Nov’97 Crude price to be fully deregulated from 01st Apr’02
As per Govt. Notification of Mar’02 the price of indigenous crude oil produced by ONGC and
OIL was market determined effective from 1st Apr’02. The MDPM was followed
Crude Oil was sold to refineries on the basis of negotiated pricing principles.
ONGC signed MoUs with Public Sector Refining companies namely - IOCL, BPCL, HPCL and
MRPL for two years till Mar’04.
Due to the differences persisting, MoUs could not be extended/COSA not yet signed, though
prices are being determined as per terms of expired MoUs.
Crude oil pricing was divided ito two components
Offshore crude & onshore crude based on its distribution channels
Pricing of offshore crude was further basedon :
36. FOB price
Ocean Freight
Sharing of Custom Duty & Sales tax
NCCD
Octroi- wherever applicable
Facilities charges
Pricing of onshore crude is based on :
FOB price
Crude pipeline charges
Sales tax
Specific discount viz. on N.G. crude
FOB Price of Crude Oil consists of:
Base price - International price of Sweet Nigerian Crude Bonny Light to which ONGC's
Crude is benchmarked.
Premium /Discount compared to marker crude - based on Gross Product Worth (GPW)
differential.
BS&W adjustment - Discount for excess Basic Sediments & Water (BS&W) over
prescribed level in the contract.
FOB Price = Price of Marker Crude minus/plus GPW differential.
Calculationof GPW Differential
Four cuts/yields of Marker Crude and ONGC Crude is taken.
For each of the Cut/yield, various products are taken as follows:
I. UPTO C4 - LPG (Saudi Aramco)
II. C5-C175 - Naphtha (Singapore)
III. C175-C350 - Gas Oil (Singapore)
IV. C350+ - Average of FO 2% and Low Sulphur Waxy Residue (LSWR) of
Singapore Market.
Other Calculations
Let,
Inward freight = $0.75/bbl
37. Outward freight = $0.30/bbl
Net freight = (0.75/2 – 0.30)
= $0.075/bbl
Custom Duty = 5% (Shared by ONGC and refinery in equal proportion)
Therefore, CD = FOB * 5% * 50%
= 69.32*.05*.5
= $1.733/bbl
Sales Tax = 4% (Shared by ONGC and refinery in equal proportion)
Therefore, ST = FOB * 4% * 50%
= 69.32*.04*.5
= 1.3864
Foreign Exchange Rate = Rs 45/$
BS&W Adjustment
Sr. No. Percentage Amount Deducted
1 Less than 0.2% NIL
2 More than 0.2% but less than 0.5% $0.10/bbl
3 More than 0.5% but less than 1% $0.15/bbl
38. 4 Any additional increase of 0.5% or
part thereof
$0.05/bbl
Special Discount
Since the crude produced in North Gujarat (NG) is heavy, an additional discount of $0.75/bbl is
given to the refineries who consume NG crude.
39. SUBSIDY SHARING MECHANISM AT ONGC
The government’s practice of forcing state-owned ONGC Ltd to shell out
a part of its oil subsidy burden is depleting its cash reserves at an alarming
rate and is threatening to push this PSU cash cow into losses.
ONGC is left with only about `13,000 crore in cash and if they continue to
subsidise at this rate, their cash reserves will go down to zero in the next
two years.
Oil and Natural Gas Corporation (ONGC) realised only $47 a barrel on the
crude oil it sold during the first quarter, marginally lower than $49
realisedin the same quarter last year even as its cost has moved up due to a
production cess imposed in the union budget. This may show on the
company’s first quarter result that is scheduled to be declared during the
weekend though substantial relief may come from the weaker Rupee.
ONGC billed its crude at $110 per barrel during the quarter but got only
$47 per barrel after giving the oil marketing companies (OMCs) a discount
of $63 per barrel. Under the government’s oil subsidy sharing mechanism,
ONGC and Oil India are required to give discounts on their crude oil sale
to government OMCs- IndianOil, Bharat Petroleum and Hindustan
Petroleum. In the first quarter of last fiscal, ONGC had given discounts of
$72.53 per barrel amounting to a total of around Rs 12,046 crore. The
discount for Q1 ended June 30 this fiscal is Rs 12,345 crore.
40. ONGC’s cost of production is $47 per barrel of crude. Given the cost, the
company’s margin on crude oil is certainly under pressure during the first
quarter. Even though the Q1 realisation may be lower than last year’s
corresponding quarter, the 24 per cent depreciation in Indian Rupee vis a
vis US Dollar, will still help ONGC post decent profits. ONGC had made
net profit of Rs 4,095 crore in the first quarter of last fiscal.
Net realisation for Oil India Ltd, however, was higher at $53.85 per barrel
for the quarter after it gave the OMCs a discount of Rs $56 per barrel.
OIL’s net realisation fell from $59.55 to $53.85 but in rupee terms rose by
9.42 per cent due to rupee depreciation and helped the company report
higher profit.
An ONGC official explained that the higher subsidy burden of $63 per
barrel on the company vis a vis OIL’s $56 is due to the inclusion of
condensates in the government’s subsidy calculation mechanism. In the
last fiscal, ONGC is estimated to have taken an additional subsidy burden
of Rs 4,500 crore on account of condensates. FY12 was the first year when
the government calculated ONGC’s share of subsidy based on its
production. Earlier, the share of ONGC and OIL used to be calculated in
the ratio of net profits.
41. ONGC'S SUBSIDY GENEROSITY , ITS AILING
SISTERS AND THE ANGRY WIFE:
State-owned Oil and Natural Gas Corporation (ONGC) is one of the most
valuable companies in the country, with annual revenue of Rs 83,889 crore and
net profit of Rs 22,094 crore.
Those numbers do not present the full picture. To insulate consumers from the full
impact of high international crude oil prices, the government controls the retail
selling prices ofdiesel, kerosene and liquefied petroleum gas. It uses the cash
generated by ONGC and other upstream (exploration and production) companies
to compensate the under recoveries for oil marketing companies, also
government-owned.
As ONGC, like a benevolent brother, kept digging into his pockets to support the
ailing sisters at the instance of their common parent, the Government of India, the
minority investors of ONGC were left grumbling like an angry, helpless wife.
42. As early as in March 2009, US investment bank Goldman Sachs said it had
“serious” concerns about ONGC’s corporate governance standards after these
cash withdrawals spurred repeated objections from investors and independent
directors. “Issues with corporate governance at ONGC are among the more
serious for companies in our coverage universe.”
ONGC and the government did not pay much heed. Often when the government
went on a roadshow to sell shares, the wife created a scene but was bullied away.
Now, however, on the eve of another sale, things are very different. The angry
wife has also become powerful. Significant changes have been made to the rules
governing related party transactions (RPTs) under the new companies law and
Clause 49 of the listing agreement. Under the new rules, the company has to get
all ‘material’ related party transactions approved from the majority of minority
investors. Any transaction valuing more than five per cent of annual turnover or
20 per cent of net worth is considered material.
At Rs 56,384 crore, ONGC’s subsidy bill for FY13-14 was over 2.5 times its net
profit, over half its revenue and 43 per cent of net worth of Rs 1.24 lakh crore,
says its latest annual report. Under Clause 49, the exemption of the move being
“in the normal course of business” is also not available. There seems no escape
from a resolution of ‘special majority’.
43. As Institutional Investor Advisory Services pointed out in a June report, minority
is the majority when it comes to RPTs. Counter-intuitively, the higher the
‘promoters’ shareholding, the more vulnerable they are. For example, if the
‘promoters’ own 75 per cent of the shares in a listed company and the public 25
per cent, this 25 per cent will account for 100 per cent of the voting power for
RPT. This gives one share a voting power of 4x.
So, what is the voting multiplier of one ONGC minority vote? Though the
government has 69 per cent stake in ONGC, it will be worth nothing if the
subsidy payout goes to vote. Of the remaining 31 per cent, Indian Oil
Corporation, one of the sister concerns receiving the subsidy, owns 7.69 per cent.
It also can’t vote.Life Insurance Corporation (7.79 per cent) and GAIL (2.4 per
cent) will also be disqualified, as they are under the control of the government.
That leaves about 13 per cent – a voting multiplier of a whopping 7.7. Some 610
foreign institutional investors which hold 6.92 per cent will have a 53 per cent
vote share if such a resolution comes up. If the father plays by the rule, the wife
will have the last laugh. But will he?
44. PETROLEUM PRICES AND UNDER-RECOVERIES
1. Average International FOB Price & Exchange rate:
Particulars Unit Pricing Fortnight
for
16th July 2014
(27-Jun-14 to 11-
Jul14)
24-Jul-14 Next Pricing
Fortnight for 1st Aug
2014
(12-Jul-14 to date i.e.
24Jul-14)
Crude Oil (Indian Basket)
- In US Dollar ($/bbl) 108.05 105.93 105.27
- In Indian Rupees (`/bbl) 6476.52 6355.80 6334.10
Exchange Rate (`/$) 59.94 60.00 60.17
2. Product-wise Under-recovery of Public Sector Oil Marketing
Companies (OMCs):
Product Unit Under-recovery
(eff. 16th July 14)
Diesel (`/Litre) 2.49
PDS Kerosene* (`/Litre) 33.07
Domestic LPG* (`/Cylinder) 449.17
*Additionally, a subsidyof ` 0.82/Litre on PDS Kerosene &`22.58/Cylinder on Domestic LPG is
provided bythe Government.
45. IMPACT OF SUBSIDIES ON ONGC PROFIT:
State-run ONGC Ltd has posted a 34 per cent fall in net profit for the first quarter
of FY14 at Rs 4,016 crore, down from Rs 6,078 crore in the year-ago period. The
company ascribed the drop in profit to dwindling sales revenue and swelling
subsidy. The oil major’s sales revenue for the first quarter fell 4.3 per cent to Rs
19,283 crore, compared to Rs 20,149 crore during the first quarter of FY13.
The Sales revenue has come down by Rs 866 crore, while subsidy burden has also
increased by 2.24 per cent. Apart from this, operating expenditure has gone up and
we also included a one-time charge towards employee pension benefits.
The under-recovery for the April-June quarter of the current financial year rose to
Rs 12,622 crore from Rs 12,346 crore in the year-ago period. The impact of under
recovery on net profit stood at Rs 7,131 crore for the quarter under review.
“Subsidy had a huge impact in our cash balance. While we started 2012-13 with
Rs 15,500 crore, it came down to Rs 13,200 crore during the beginning of this
financial year. The average crude oil price for the first quarter was around $102,
but our net realisation was just $40.17 per barrel after subsidy cuts. The net
realisation for the first quarter of the last financial year was $45.91 a barrel.
The overall petroleum subsidy jumped from Rs 138,000 crore in 2011-12 to Rs
161,000 crore in 2012-13, before falling to Rs 139,000 crore in 2013-14.
However, ONGC’s share of the underrecoveries has increased 27 per cent — from
Rs 44,466 crore in 2011-12 to Rs 56,384 crore in 2013-14, taking a toll on price
realisations from nominated fields. In 2013-14, ONGC’s net retention crude price
was only $41 a barrel. The company has been requesting the ministry to review
the existing subsidy-sharing mechanism to ensure a realisation of at least $65 a
barrel to generate sufficient cash.
Oil and Natural Gas Corp (ONGC) has paid a whopping Rs 272,721 crore in fuel
subsidy over the past 11 years, denting its profitability
As part of the government’s fuel subsidy-sharing mechanism, ONGC had to give
discounts of R12,622 crore to state-owned oil marketing companies (IOC, HPCL
46. and BPCL) in the first quarter of 2013-14, up from `12,346 crore in the previous
corresponding quarter.
The company, which ranks No. 4 among India’s most valuable companies — after
TCS, Reliance Industries and ITC — with a market capitalisation of Rs 2.47 lakh
crore, had a cash pile of more than `25,000 crore in 2010-11. But if the current
trend continues, it will have to borrow to sustain its day-to-day operations. ONGC
shares, which have traded in the Rs240 to Rs340 band since April 1, closed
`289.15 on Friday. It hit a 52-week high of Rs354.10 on January 18 this year.
Consider this: even as the global oil prices have touched a high of $110/barrel,
ONGC’s net realisation is only $40.17/barrel against its net production cost of
$40/barrel.
“ONGC earns only a few cents on each barrel of oil… Can it survive with this
much?” asked the former chairman Vasudeva, adding that the company’s
operational costs are going up and it needs to generate sufficient funds to finance
its future growth. Vasudeva’s take: ONGC should get at least $65/barrel against
the global oil price of $100/barrel.
IMPACT ON PROFITABILITY
Years Gross discount Impact on
Statutories Levies
Impact on Profit
Before tax
Impact on Profit
AfterTax
2014-15 36,300 5,340 30,960 20,437
2013-14 56,384 8,628 47,756 31,524
2012-13 49,421 7,362 42,059 28,413
2011-12 44,466 6,667 37,799 25,535
2010-11 24,892 3,558 21,334 14,247
2009-10 11,554 1,629 9,925 6,551
2008-09 28,285 4,292 23,933 15,798
2007-08 22,001 1,942 20,059 13,241
2006-07 17,024 1,448 15,576 10,333
2005-06 11,956 1,089 10,868 7,210
2004-05 4,104 255 3,849 2,553
2003-04 2,690 203 2,488 1,596
47. 1.Net Crude Price is calculated considering whole discount on crude oil.
2. Based on directives of MoP&NG, refineries have started making deductions
for Octroi and VAT/ CST on discount w.e.f. 01.04.2012. Gross Crude prices for
the year 2012-13 are without considering deduction made by refineries on such
account. However, Gross crude prices from 2013-14 onwards are after
considering deductions being made by refineries towards Octroi and VAT/ CST
on discount.
GRAPH 2003-2015
0
10,000
20,000
30,000
40,000
50,000
60,000
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
Rs.incrore
Gross discount
Impact on Statutories
Levies
Impact on Profit
before tax
Impact on Profit
AfterTax
0
10000
20000
30000
40000
50000
60000
Rs.incrores
Chart Title
Gross discount Impact on Profit AfterTax
48. 3. Gross prices for Q3 FY'15 and 9M FY'15 are provisional, as these would get
reduced on account of deduction of VAT/CST and octroi on discount.
SUBSIDY DISCOUNT ENTRY ISSUE
The main issue is accounting for VAT. VAT as per Guidance Note on the subject is being
accounted for between ‘debtors’ and ‘VAT Payable’. Hence, accounting for VAT has no
impact in P&L A/c.
Subsidy discount results in the following :
(a) reduction in sales
(b) reduction in debtors
(c) reduction in VAT Liability, as selling price goes down
(d) reduction in Royalty (in case of MUM & RJY-Off), Octroi (MUM) & Sales Tax
(on VAPs).
Therefore, consequent to reduction in sales, debtors is also reduced to the same extent.
Further the impact of reduction in selling price leads to reduction in VAT Liability, this
reduction also leads to reduction in debtors. Hence Debtors are reduced by reduction in
Sales Revenue + Consequent Reduction in VAT Liability.
49. WHEN DISCOUNT IS ACCOUNTED FOR IN HEADQUATORS
BOOKS:
When discount is accounted for at HQ, entire credit is given to a single customer say,
‘IOCL’. This entry is reversed in the next period.
Since the entry at HQ does not cover/include the impact of VAT on VAPs (due to non-
availability of details), there would remain a difference in Pre & Post Discount Balance
Sheets, if Subsidy-Discount entry is made at Hqrs..
At HQ, Impact on Royalty, Octroi and Sales Tax is also calculated proportionally on the
basis of previous period actuals. In actual, the same may be different when accounted for
by the respective Projects.
WHEN DISCOUNT IS ACCOUNTED FOR IN PROJECT BOOKS:
When Projects carry out accounting for subsidy-discount, respective Debtors are credited.
It may so happen that a particular debtor having debit balance prior to subsidy- discount
may end up with a credit balance post subsidy-discount entry.
Under above circumstances, debtors’ having credit balance are transferred to Other
Deposits – Liabilities. This will result in change in Balance Sheet between submitted by
Project before and after Subsidy Discount .
Secondly, Discount on VAPs is on RTP which is equivalent to Basic Price. All levies and
taxes are over and above RTP. Thus consequent upon subsidy-discount, as RTP changes,
VAT will also change. Change in VAT for VAPs will be reflected in Debtors’ A/c and
50. VAT Payable A/c. Again, this will result in change in Balance Sheet between submitted
by Project before and after Subsidy Discount as far as these two B/Sheet A/cs are
concerned.
51. ONGC Sales Pattern
CUSTOMER BASE
OFFSHORE CRUDE
Mumbai High Crude is supplied from the following refineries:
IOC- Vadinar
CPCL – Chennai
BPCL – Mumbai
BPCL- Kochi Refinery
HPCL – Mumbai
HPCL – Vishak
MRPL – Mangalore
ONSHORE CRUDE
For north Gujarat & South Gujarat Crude :
IOC – Koyali
For Assam Crude :
IOC – Guwahati
IOC – Bongaigaon
NRL(Numaligarh refineries limited)
For Cauvery Crude:
CPCL –Panangudi
For KG Crude:
HPCL – Vishak/IOC
53. SUBSIDIARIES
I. ONGC Videsh Limited - Working globally for the energy security of India
ONGC Videsh, a Miniratna Schedule “A” Central Public Sector Enterprise (CPSE) of the
Government of India under the administrative control of the Ministry of Petroleum & Natural
Gas is the wholly owned subsidiary and overseas arm of Oil and Natural Gas Corporation
Limited (ONGC), the flagship national oil company (NOC) of India. The primary business of
ONGC Videsh is to prospect for oil and gas acreages outside India, including exploration,
development and production of oil and gas.
ONGC Videsh was incorporated as Hydrocarbons India Pvt. Ltd. on 5 March 1965 to carry out
exploration and development of the Rostam and Raksh oil fields in Iran and undertaking a
service contract in Iraq. The company was rechristened as ONGC Videsh Limited on 15th June,
1989 with the prime objective of marketing the expertise of ONGC abroad. The nineties saw the
Company engaged in limited exploration activities in Egypt, Yemen, Tunisia and Vietnam.
In its new avatar as ONGC Videsh, the company from mid-nineties re-oriented its focus on
acquiring quality overseas oil and gas assets. ONGC Videsh, which had one asset in year 2000,
gradually succeeded in competing with the best in the international arena and could conclude
many large transactions across the world in subsequent years. Presently, ONGC Videsh owns
Participating Interests in 33 oil and gas assets in 16 countries and contributes to 14.5% and 8% of
oil and natural gas production of India respectively. In terms of reserves and production, ONGC
Videsh is the second largest petroleum Company of India, next only to its parent ONGC.
ONGC Videsh’s oil and gas operations produced 8.36 MMT of oil and oil equivalent gas in
2013-14 as against 0.252 MMT of O+OEG in 2002-03. ONGC Videsh’s overseas cumulative
investment up to 31st March, 2014 has crossed USD 22 billion.
II. Mangalore Refinery and Petrochemicals Ltd
Mangalore Refinery and Petrochemicals Ltd. (MRPL) an ONGC group company, and a ‘Mini
Ratna 1’ is nestled in the lush green glades of Dakshina Kannada District in Mangalore,
strategically located on the West Coast of South India, close to Middle East & Far East crude and
product markets.
Originally started as a joint venture company promoted by
Hindustan Petroleum Corporation Ltd. (HPCL) and the
Aditya Birla Group (ABG), MRPL got its lifeline once the
ABG share holding was taken over by Oil and Natural
Gas Corporation Ltd. (ONGC) in 2003. The company
turned around and has not looked back since notching
benchmarks in the Indian Oil Industry, on production,
turnover, capacity utilization, safety
performance, energy consumption, environment, project implementation
and quality management processes.
MRPL’s Refining Capacity is around 8 % of India’s total Refining capacity as on 1-04-2012.
Equipped with state-of-art technologies, a motivated task force and enhanced capacity of 15
MMTPA with a Refinery complexity of around 9.5, MRPL is well placed globally, to compete
with the peers in the Refining Industry. With addition of value added products to its product
54. portfolio post commissioning of the expansion project, MRPL is now focused on setting global
benchmarks.
The Refinery’s Expansion and up gradation project with an investment of around Rs 15,000 Cr
(USD 3 Billion) will improve the Refining margins significantly, bringing value to all its stake
holder
Process of ONGC Group Consolidated Accounts:-
The Consolidated financial statements relate to the Company, its Subsidiaries, Joint Venture
entities and Associate. ONGC has various strategic investments to diversify the business
objective through special purpose vehicle (SPVs) entities like subsidiary companies, Mangalore
Refinery & Petrochemical Limited (MRPL-71.62 %-refinery business) and ONGC Videsh
Limited ( OVL-100%-OIL & GAS ), Joint venture companies like Petronet LNG Limited (PLL-
12.5%-LNG import and supply), Petronet MHB limited (PMHBL-28.77%-pipe line
transportation), Mangalore SEZ limited (MSEZ-26%-SEZ development), Dahej SEZ Limited
(DSEZ-50%-SEZ development), ONGC Teri Biotech Limited (OTBL-49.98%-Bio remedial),
ONGC Tripura Power Company Ltd. (OTPC-49.52%-Gas Power Plant) , ONGC Mangalore
Petrochemical Limited (OMPL-46% -Petrochemical), ONGC Petro Additions Ltd (OPaL-
49.36%-value added Product) and Associates Company Pawan Hans Limited (PHL-49% -
Helicopter).
Consolidated financial statements normally include consolidated balance sheet, consolidated
statement of profit and loss, and Notes to accounts, Consolidated cash flow statement,
Consolidated Segment result other statements and explanatory material that form an integral part
thereof. The consolidated financial statements incorporate all domestic as wells as foreign
subsidiaries and joint ventures as per AS 21, consolidated financial statements (CFS) are
presented, to the extent possible, in the same format as that adopted by the Company for its
standalone financial statements.
The consolidated financial statements relate to the Company, its subsidiaries, joint venture
entities and associates. ONGC Corporate account circulate prescribed format in excel to it group
companies for submission of their Audited account and notes to account, Cash flow statement
and segment result for consolidation by ONGC within the timeline. The consolidated financial
statements are prepared on the following basis: -
The financial statements of the Company and its subsidiary companies are consolidated
on a line-by-line basis by adding together the book values of like items of assets,
liabilities, income and expenses after fully eliminating intra-group balances and intra-
group transactions including unrealized profits or losses, if any, in accordance with AS –
55. 21 on ‘Consolidated financial statements’ issued by the ICAI.
The financial statements of joint venture entities are consolidated by applying
proportionate consolidation method on a line-by-line basis on items of assets, liabilities,
income and expenses after eliminating proportionate share of unrealized profits or losses
in accordance with AS – 27 on ‘Financial reporting of interests in joint ventures’ issued
by ICAI.
In case of foreign subsidiaries and joint ventures, foreign currency transactions are
translated as per the provisions of AS-11 on ‘Accounting for effects of changes in foreign
exchange rates’ issued by the ICAI in the consolidated financial statements.
In case of associates, where the company directly or indirectly through subsidiaries holds
more than 20% of equity, investments in Associates are accounted for using equity
method in accordance with AS 23 on ‘Accounting for investments in associates in
consolidated financial statements’ issued by the ICAI. Under equity method, share of
the profit/loss of the associate is shown in Profit & Loss Account and is adjusted with the
‘Investment in Associates’ in the Balance Sheet.
The consolidated financial statements are prepared using uniform accounting policies for
like transactions and other events in similar circumstances and are presented to the extent
possible, in the same manner as the company’s standalone financial statements except as
otherwise stated in the notes to the accounts.
The difference between the costs of investment in the subsidiaries/associates, over the net
assets at the time of acquisition of shares in the subsidiaries/associates is recognized in
the financial statements as goodwill or capital reserve as the case may be.
Minority interest’s share of consolidated net profit/loss of subsidiaries (consolidated
accounts of subsidiary with its subsidiaries) for the year is worked out and adjusted
against the income of the group in order to arrive at the net income attributable to the
shareholders of the company.
Minority interest’s share of consolidated net assets of subsidiaries (consolidated accounts
of subsidiary with its subsidiaries) is worked out and presented in theIntergroup
transactions within the group companies being eliminated as per AS-21, AS-23 & AS-27.
57. Joint Ventures/ Associates
ONGC Petro-additions Limited (OPaL)
ONGC Petro-additions Limited (OPaL), has been promoted by your company as a J oi nt Ve n t u r
e ( J V ) Co m p an y ,w i t h envisaged equity stake of 26% along with GAIL(15.5%) and GSPC
(5%). The balance equity of 53.5% is to be tied up with Strategic Partners/ FIs / IPO.
OPaL is a mega downstreampetrochemicalintegrated project at Dahej SEZ for utilizing in-house
production of C2-C3 and Naphtha from various units of ONGC.
Recently on August 23rd, 2013, your company signed a Product Sale Agreements with OPaL for
supply of feed-stocks, thereby enabling OPal's lenders to release funds for implementation of the
project.
Present status
Overall Cumulative progress is 89.84 %.
Total cumulative expenditure as on 31st March 2014 is
`181,557 million. Approved project cost is `213,960 million.
Debt closure has been at tained for approved project
cost of `213,960 million with the execution of Rupee Term Loan agreement, for ` 149,770
million, including ECB of USD 300 million.
Based on the current project progress, expected
completion schedule of the Project is Jan, 2015
ONGC Tripura Power Company Ltd (OTPC)
Your Company has promoted OTPC with an envisaged stake of 50% along with Gov t. of Tripura
(0.5%) and IL&FS Energy Development Co. Ltd. (IEDCL - an IL&FS subsidiary) (26%); the
balance 23.5% is proposed to be tied up through IPO / Strategic / Financial Investor.
OTPC is set ting up a 726.6 MW (2 X 363.3 MW) gas based Combined Cycle Power Plant
(CCCP) at Palatana, Tripura. The basic objective of the project has beento monetize idle gas
assets of ONGC inland- locked Tripura state and to boost exploratory ef forts in the region.
58. Present Status
OTPC's first unit (Unit-1) was dedicated to the Nation by the Hon'ble President of India
on 21st June, 2013. However, commercial operation of its first unit (363.3 MW)
effectively got started from 4th January 2014 in presence of representatives of beneficiary
states. The second unit is expected to be commissioned in the second quarter of financial
year 2014-15.
The unit has been granted provisional tarif f by Central Electricity Regulatory
Commission (CERC). The Ministry of Power has allocated more than 86% of power
from the project (two units) to the NER beneficiary states while 98 MW is allocated to
OTPC for merchant sales. The OTPC has already signed a gas sale and purchase
agreement (GSPA) with ONGC for supplying Daily contracted Quantity of 2.65
MMSCMD of gas.
The 663 KM long 400 K V double circuit transmission net workPalatana-Bongaigaon
transmission has been commissioned up to Byrnihat by North-East Transmission
Company Limited (NETCL), a joint venture of Power Grid Corporation, OTPC and
Governments of the North-Eastern states. This development is helping in evacuating
power from Unit-1 and enables partial evacuation from unit II. For complete evacuation
of Unit-II power, the remaining Byrnihat-Bongaigaon section of the line requires to be
completed and its completion is expected to coincide with Unit II commissioning, subject
to timely resolution of certain forest clearance issues.
The total expenditure incurred on the project till 31st March, 2014 is `34,560 million
against the total estimated cost of `40,470 million.
State Bank of India is funding the entire debt for the project at a Debt: Equity ratio of
75:25.
ONGC Mangalore Petrochemicals Limited (OMPL)
Your company has promoted OMPL as a value-chain integration project for manufacturing
Para-Xylene and Benzene from the Aromatic streams of MRPL with an envisaged equity
participation of 46% along with MRPL (3%), with balance 51% to be tied up through IPO /
Strategic / Financial Investor.
Present Status
Overall Cumulative progress is 98.5% as on 31st March 2014
Total cumulative expenditure on the project is `51700 million. Approved project cost is
`57500 million.
The commercial operation date (COD) is August 2014.
59. DahejSEZ Ltd (DSL)
Your company as Lead Promoter is developing a multi-product SEZ at Dahej in coastal Gujarat to
facilitate your company's endeavours at C2- C3 Extraction and value-chain integration project -
OPaL. Your company has 23% equity in the project with GIDC having 26% and balance 51% is
proposed to be tied up through IPO / Strategic / Financial Investor.
Present Status
SEZ is already operational and units in SEZ have clocked export of `14,200 million in FY
2012-13 and `19,740million in FY 2013-14.
92% of the leasable land has already been allot ted and the remaining land is expected to be
leased in the nex t two years.
Expert Appraisal Commit te e of Ministr y of Environment and Forest (MoEF) has
recommended CRZclearance for 123.42 ha of land in Dahej SEZ. Formal approval is
awaited.
Mangalore Special Economic Zone Limited (MSEZ)
With an envisaged equity stake of 26% along with KIADB (23%), IL&FS (50%), OMPL (0.96%)
and KCCI (0.04%), ONGC is set ting up MSEZ to serve as site for development of necessary
infrastructure to facilitate and locate ONGC/MRPL's Aromatic complex being promoted by
ONGC.
Present status:
65% of the leasable land has already beenallot ted.
Pipeline Corridor development - MoEF clearance is awaited for construction works at
Reach 2 (~ 1.8 km). Pursuant to presentations to Expert Commit tee of MoEF and
clarifications, recommendations have been submit ted to MoEF, Delhi. Final clearance is
awaited. However, interim arrangement for laying of OMPLpipelines in this reach has
been made, thereby facilitating OMPLto utilize the corridor.
Land acquisition issues at Reach 3 (~1.5 kms) - Gazette notification has been issued.
Price fixation meeting was held on 23rd Oct'13 although resolution would take one more
round of discussions. However, due to LokSabha elections and the model code of conduct,
further discussions could not take place. Interim arrangement for laying of OMPLpipelines
in this reach has also been made, thereby facilitating OMPLto utilize the corridor.
River Water infrastructure: Supply to MRPL and OMPLhas commenced. Water Agreement
has been initialled with OMPLand is under finalization with MRPL.
60. ONGC TERI BiotechLimited (OTBL)
ONGC TERI Biotech Limited (OTBL) which was incorporated on 26th March, 2007 is a Joint-
venture Company of ONGC in association with The Energy Research Institute (TERI), with
shareholding of 49.98% & 48.02%, respectively. Balance 2% is held by FIs. Through the ef forts of
joint research of ONGC &TERI over the years, OTBL is of fering below mentioned technologies
and providing variousBiotechnical Solutions to Oil and Gas Industry, both in India and abroad:
I. Oilzapper Technology (Bioremediation)- used to eliminate & tackle Oil Spills, Oily Sludge,
and hazardous hydro carbon waste;
II. Paraf fin Degrading Bacteria (PDB)- used to prevent Paraf fin Deposition in Oil well Tubing;
III. Wax Deposition Prevention (WDP)- used to prevent Paraf fin Deposition in surface and sub-
surface flow lines;
IV. Microbial Enhanced Oil Recovery (MeOR)- used for Enhanced Oil Recovery by mobilizing
crude oil trapped in pores of Oil Reservoirs.
During 2013-14 the turnover of OTBL was `154.4 Million with Profit after Ta x of `44.8 Million as
against turnover of `136.61 Million and Profit after Ta x of `40.05 Million in the previous year.
Petronet MHB Limited(PMHBL)
PMHBL is a JV company wherein your company has an equity stake of 28.766% along with HPCL
(28.7%) and PIL (7.898%) with balance 34.57 per cent of equity being held by leading banks.
PMHBL owns and operates a multi-product pipeline to transport MRPL's products to the hinterland of
Karnataka
In FY'14 PMHBL pipeline has transported a throughput of 3.07 MMTagainst total throughput of 2.82
MMT last year. As per un-audited results for the year 2013-14, the turnover and PAT of PMHBL are
`1295 million and `510 million respectively.
Petronet LNG Limited (PLL)
ONGC has 12.5 per cent equity stake in PLL, identical to stakes held by other Oil PSU
copromoters viz., IOCL, GAIL and BPCL. Dahej LNG terminal of PLL having a capacity of
10 MMTPA is currently meeting nearly 20 per cent of the total gas demand of the country. A new
LNG terminal of capacity 5 MMTPA has been set up at Kochi and was dedicated to the Nation
by Hon'ble Prime Minister of India on 4th January, 2014. The Company is also planning to set up
an LNG terminal of capacity 5 MMTPA at Gangavaram, Andhra Pradesh. The turnover of PLL
during 2013-14 is `377,476 million (previous year `314,674 million) and net profit is `7,119
million (previous year `11,493 million).
61. Associates
Pawan Hans Limited (PHL)
ONGC has 49 per cent equitystake in PHL (previously known as Pawan Hans Helicopters
Limited). Balance 51 per cent equity is held by the Government of India. PHL is one of Asia's
largest helicopter operators having a well- balanced operational fleet of 40 helicopters. It
provides helicopter support for ONGC's of fshore operations. PHL was successful in providing
all the 12 Dauphin N and N3 helicopters fully compliant with AS- 4 as per the new contract with
ONGC. The accounts of PHL for 2013-14 are under finalisation
63. Chapter - 5
RECOMMENDATIONS &CONCLUSION
The current approach to fuel pricing in India has resulted in large fuel subsidies.
Thesesubsidies increased sharply from around 0.8 percent of GDP in 2009/10 to 1.9
percent ofGDP in 2011/12. As well as being fiscally costly, these subsidies are both
inefficient andinequitable. However, eliminating them will have substantial negative
impact on the realincomes of households, estimated to range from 4 percent for the
lowest income groups to5 percent for higher income groups. About three-quarters of the
impact arises fromsubstantially higher prices for kerosene and LPG.
Although the government has expressed its commitment to controlling fuel subsidies
andrecently undertaken measures to lower these subsidies, it has not as yet set out a
mediumtermreform agenda for subsidy reform, including measures to ensure large
subsidies do notrecur. However, a number of commissions have recommended options
for subsidy reform.
These commissions have recommended:
The use of international fuel prices as the appropriate reference for setting prices;
The elimination of diesel subsidies over the short term followed by full diesel
price liberalization;
The gradual removal of kerosene andLPG subsidies; and
The replacement of in-kind subsidies with targeted cash transfers
