By R Jagannathan
The government's milch cow is mooing plaintively.
The Oil and Natural Gas Corporation (ONGC), the public sector energy giant that is being bled continuously to pay for the UPA's re-election agenda by maintaining high oil subsidies, has let out a loud wail saying in two years it will be drained of all surpluses.
A Business Standard report quotes ONGC Chairman and Managing Director Sudhir Vasudeva as saying that half its current surplus of Rs 28,000 crore is earmarked for annuity payments for employees and oilwell restoration. This leaves very little money for investment to raise oil production.
Said Vasudeva: "As on date, Rs 9,200 crore is in the Site Restoration Fund (before abandoning a field). This can't be used anywhere else. With another Rs 3,500 crore, we have to buy annuity for our employees on leave and other benefits. What is left is only half of Rs 28,000 crore and this can get wiped out in less than two years at current margins of $8 ( a barrel)."
This begs the question: when global oil prices are quoting at over $100-105 a barrel, how come ONGC makes a margin of only $8? Who is swallowing up the rest of the margins?
The answer, of course, is the loot-and-scoot team of the exchequer, which dips into ONGC's till to reimburse the oil marketing companies (OMCs, which include Indian oil, Hindustan Petroleum and Bharat Petroleum) for selling diesel, kerosene and cooking gas at subsidised prices.
Between 2008-09 and 2011-12, ONGC has paid Rs 1,09,000-and-odd crore in subsidies to the OMCs.
At current super-subsidised selling prices, the OMCs lose $402 crore a day, and make under-recoveries of Rs 12.13 per litre of diesel, Rs 28.54 on kerosene, and Rs 231 on each cylinder of gas. Normally, the bill for these losses should go to P Chidambaram, the new finance minister, but such is the level of corporate misgovernance in public sector companies that the finance ministry has shamelessly asked ONGC, Gail and Oil India to pick up 38 percent of its subsidy bill.
This is why Vasudeva is yelling blue murder.
The pernicious practice of getting ONGC and the other oil and gas exploration and production companies to take on the exchequer's subsidy burden was started by Chidambaram himself in UPA-1, but now his mistakes are coming home to roost in his third coming as FM.
To be sure, the blame must be laid at the doors of Sonia Gandhi and the Congress high command, and of course fair weather allies like Mamata Banerjee and Mulayam Singh, who will stoutly oppose any reduction in subsidies, allegedly to defend the interests of the aam aadmi.
And in this year of drought, the talk is not about cutting subsidies and raising diesel prices but cutting them down further for the poor farmer. The government decided earlier this week that diesel used for pumpsets will be subsidised by 50 percent - a subsidy that will be impossible to police. It could thus create another avenue for corruption in the name of helping drought-hit farmers.
It could also mean that the politically difficult decision to raise diesel prices will now be indefinitely put off. As Planning Commission Deputy Chairman Montek Singh Ahluwalia told Reuters in an interview, "In my view there is a good economic case for adjusting oil prices. It's also no secret that these things become politically difficult, and maybe a little more difficult in a drought year."
So Sorry, Mr Sachdeva. The UPA is not about to sail to your rescue, it seems. Your company's pockets will be emptied further in the months ahead.
Your best bet is to instigate a private investor in ONGC to move the courts for corporate misgovernance, as The Children's Investment Fund has recently done so in the case of Coal India.
UPA's political inclinations are to ruin your company in the larger cause of returning them to power.