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Evading primary responsibility, ONGC decides to invest Rs 15,000 crore in sick subsidiary

By NS Venkataraman* 

It is reported that Oil and Natural Gas Corporation (ONGC) will infuse about Rs 15,000 crore in ONGC Petro-additions Ltd (OPaL) as part of a financial restructuring exercise. ONGC currently holds 49.36 per cent stake in (OPaL), which operates a mega petrochemical plant at Dahej in Gujarat. GAIL (India) Ltd has 49.21 per cent interest and Gujarat State Petrochemical Corporation (GSPC) has the remaining 1.43 per cent.
OPaL is reported to have incurred losses in the past due to lopsided capital structure with high-debt servicing cost. It is said that cost overrun due to delay in implementation of project is the primary reason for it incurring losses . Obviously, delay in implementation and commissioning of the project must have happened due to various reasons and perhaps, including some hidden reasons which have not been shared adequately.
Accumulated losses touched Rs 13,000.30 crore on 31st March 2023. As noted by the company's auditors, OPaL is "facing negative working capital of Rs 70,750 million as of that date. Net worth of the Company has reduced to Rs 6,207.99 million as at March 31, 2023 as compared to Rs 45,837.20 million as at March 31, 2022. In spite of these events or conditions which may cast doubt on the ability of the company to continue as a going concern, the management is of the opinion that going concern basis of accounting is appropriate in view of the cash flow forecasts and the plant management has put in place along with other facts."
The product basket of Opal include HDPE, LLDPE, Poly Propylene, Benzene, Butadiene, CBFC and Pygas. All the products are extremely important ones and with high relevance for the country’s industrial and economic growth. There are domestic supply gap for some of the products, which lead to heavy imports. Therefore, OPaL does not have issues in the marketing front.
Apart from the relevance of the products, the operating standards and product specification of ONGC are of reasonably good standards and there is no issue on this front also.

ONGC’s proposal

It is reported that ONGC would make additional investment that would convert Opal into virtually a subsidiary of ONGC.
While ONGC would spend Rs 15,000 crore in OPaL, there is no information in the public domain as to what would be the strategy to revamp the unit and place it on the path of profitability. This information is particularly necessary, since the product range of OPaL are extremely important and apparently there are no technical snags in operating the projects. Mere change of product mix by OPaL as part of revamping plan will not provide any significant reduction in loss.
There is considerable public curiosity about the future of this large project and why ONGC wants to make such a large investment in revamping this what appears to be “financially sick unit”.
In this scenario, the question is whether ONGC should pump further money of Rs.15000 crore in this project and whether alternate options have been examined without committing further money by a public sector unit like ONGC.
India’s production of crude oil and natural gas is not significantly increasing and ONGC is the principal player in India with the responsibility to boost the production of crude oil and natural gas by drilling more wells and optimising the yield.
The legitimate question is whether the focus of ONGC should entirely remain on oil drilling activity and enhancing production of crude oil and natural gas or should it’s funds be spent for revamping a loss incurring unit and with management time and attention being diverted in managing OPaL also.
Should it not be so that ONGC should spend its resources and time in fulfilling its primary responsibility of boosting crude oil and natural gas?

Privatisation proposal of BPCL

Recently, Government of India announced big plans for privatising Bharat Petroleum Corporation (BPCL) and invited bids. The government had announced BPCL sale in 2019 as it sought to raise record funds by offering majority stakes in state-owned companies to boost a slowing economy.
BPCL is a profit making company. There has been considerable valid criticism about the government’s move to privatise BPCL, since it was viewed as an attempt to provide the profit making company on a platter to Indian and foreign private investors. The question is not related only to private sector taking over a public sector unit but why the government should give up a profit making public sector unit which provides impressive returns to the government year after year.
The planned sale received three bids. However, the government had to stall the privatisation of BPCL since two bidders walked out due to volatility in the global oil market and may be unacceptable terms of the bid issued by the government. The Vedanta group alone stayed in the bid and offered to buy 53% of the government’s equity, spending around $12 billion. However, government did not want to proceed with only single bid available.
When BPCL sale viewed in favour, why not OPaL?
Obviously, Government of India has no objection in principle to privatise the public sector units, as seen in the case of BPCL.
In such condition, it would be appropriate to privatise loss incurring OPaL instead of further investing as high as Rs 15,000 crore by public sector unit ONGC , which has several responsibilities to fulfil and which are in the work in process stage now.
Government of India should be pragmatic in taking such decisions with regard to privatisation of sick units, as loss incurred by public sector units are effectively loss incurred by the government. OPaL management has been given adequate time to deal with the issue and it is time now to call a spade a spade.
While inviting bids for privatising OPaL , it is inevitable that the government has to provide some concessions such as facilitating writing off the huge interest burden and so on. This is the price that the government has to pay for mismanaging a large public sector unit like OPaL for several years.
In the case of loss making private sector units, the promoters would be hauled up and would face even humiliation. But, in the case of loss incurring public sector units, no one seems to be responsible!
---
*Trustee, Nandini Voice For The Deprived, Chennai

Comments

Anonymous said…
The report seems to be paid up by Banks or private companies who shall loose cream from loan interest. She has further gone wrong in suggestions of writing of debt to sale to private companies.

Entire article seems to favour private companies. Rest you can understand yourself and avoid it.
Anonymous said…
Fake suggestions
Anonymous said…
Reporter wants ongc to only focus on Oil drilling...and wants Privates to expand horizontally and vertically in oil.

Good level of reporting...
Anonymous said…
Nandni, voice of deprived is an NGO.
But it seems voice of Private & corporate.


Anonymous said…
It appears paid article.

All refineries have petrochemical vertical. It is wrong to say that Refineries should not invest in Petrochemical.

Similarly ONGC should also . In 2020-21, crude price reached $20 per barrel. Since ONGC was lucky to sustain low price due strong financial but can not be lucky always. Hence ONGC should have different vertical to hedge the risk.

Opal is in loss primarily due to interest on loan. Govt should support ONGC to revive Opal and save millions of job
.

One of the objectives of writer would to declare Opal sick and purchased by intended buyer.

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