The Election Commission on Monday asked the oil ministry to defer notifying doubling of price of the fuel produced by companies such as Reliance Industries till general elections are completed . However, DK Sarraf, Chairman of ONGC is not perturbed by the news, saying it is just a deferment.
He believes whichever government will come into power next will go ahead with the existing energy policies – gas price hike – as it is in the interest of the nation. He says the new government too will see the merits of hiking gas price.
He says there is no clarity on whether the new government will accept the Rangarajan formula.
Sarraf says it is possible to implement price hikes retrospectively from bulk customers, but it will be tough to do the same as far as retail customers go.
He is not in favour of ONGC subsidizing fertilizer companies. He says there is no clarity on whether subsidy sharing formula will be tweaked in the interim period of gas price hike.
Below is the verbatim transcript of DK Sarraf's interview with CNBC-TV18's Latha Venkatesh, Anuj Singhal and Sonia Shenoy
Latha: The gas price hike has been deferred now, can you calculate what will that mean for Oil and Natural Gas Corporation (ONGC) say in the first half of the FY15 fiscal?
A: We are not perturbed by deferment, it is only deferment because the government has already taken a decision to increase the gas price. So as I have read in the media reports, the election commission (EC) has deferred so they would have taken into consideration the things which they need to so it is deferred.
Latha: There is a best case scenario that the next government has a decent and stable majority and it is able to reinforce this decision. But it is also possible that the next government is ideologically opposed to the gas price hike and therefore another round of debating and committee setting and committee recommendations could also be set in motion. So if this is deferred let us assume by six months or one year what is the loss to your company?
A: First of all I don't believe that the merits which the existing government has seen in increase in gas price, the new government would not see that and I believe whatever is the future setup, the energy policies would continue because that is the only thing in the interest of the nation.
Anuj: The key point here is that if this is only a deferral because of technical reasons and because of EC decision is there a chance that you will still get the gas price hike as per new formula from April 1 with a retrospective effect once the elections are over and in that case investors should not be bothered about this decision?
A: There are two types of gas customers, one are the wholesale customers and other are the retail customers. It is very difficult to implement the gas price increase from the retail customers but theoretically speaking the gas price increase from the bulk customers retrospectively is possible. I am not saying that would happen but whether it happens or not that the set government would decide. But in any case the new government would also see the merit which the existing government has seen.
Anuj: Give us the worst case scenario in that case because last time we spoke to Mr Sudhir Vasudeva when he was a chairman, he told us that every one dollar hike is about Rs 4,000 crore added to the topline. If it has been deferred for six months, have you done the numbers in terms of potential loss for next financial year?
A: You already know the arithmetic, so the numbers remain same whatever the previous chairman has said. Approximately Rs 4,000 crore is the impact of gas price increase per dollar mmbtu for one year on the topline. So as per your perception, how many months it would take the mathematics is quite simple.
Sonia: Is there any clarity on whether the new government will accept the formula approved by the previous government or will start the whole process again?
A: There cannot be any clarity as of now. It could be only a method of perception and my strong perception is that whatever merit the existing government has seen in increasing gas price, I am reiterating only that the new set up would also see the same merits.
Latha: If it was Rs 4,000 crore per dollar and one assumed it would be USD 4 increase or even USD 3 increase, you would have got Rs 12,000 crore so we should assume that at least Rs 3,000 crore is gone for now?
A: That is on the topline. I don't remember what the impact is on the bottomline.
Latha: You are saying topline because in any case the bottomline you would have been forced to pay the underrecoveries for fertiliser?
A: There is no case for subsidizing by ONGC or for that matter any other national oil company on sharing of this fertiliser subsidy because you cannot give something to me from right hand and take the same thing from the left hand.
Anuj: Do you think the subsidy sharing formula will have to be tweaked a bit if this decision has to stand for more than 6-9 months, if this gas price hike does not go through over the next six-nine months?
A: What would happen in future is anybody's guess and your guess would be perhaps better than mine because you are more informed than I am.
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