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Corporate Jun 28, 2013

Gas price hike: ONGC, OIL to rake in moolah, GAIL may shrink

New Delhi: State-owned Oil and Natural Gas Corp (ONGC) will add about Rs 8,000 crore to its profits annually from near doubling of natural gas prices from next fiscal.

Oil India Ltd, the second largest state explorer, expects to rake in Rs 250 crore on every dollar increase in gas price.

The government on Thursday approved raising gas price to about $8 per million British thermal unit from current $4.2 to attract more investment in oil and gas hunt so that production is raised and imports cut.

Gas gets costly. Reuters

Gas gets costly. Reuters

ONGC Director (Finance) AK Banerjee said the company's annual profits will rise by about Rs 8,000 crore from the price increase.

The company produces some 60 million standard cubic meters per day of gas.

"We gain about Rs 2,000 crore from every dollar per mmBtu increase in gas price," he said.

ONGC had reported a net profit of Rs 20,926 crore in 2012-13 fiscal.

OIL Director (Finance) TK Ananth Kumar said every US dollar per mmBtu increase in gas price adds Rs 400 crore to the company's topline and Rs 250 crore to its bottomline (profit).

"We should add Rs 1,600 crore more to the topline and about Rs 1,000 crore to the bottomline at the new prices," he said.

Earnings per share will rise by Rs 16 per share.

"Besides improving profitability, the decision will also encourage more investments in India's oil and gas sector," he said. "It will encourage companies to become much more aggressive in exploring for new gas."

On the contrary, gas utility GAIL India expected a Rs 1,300-crore hit on its pre-tax profits on account of higher costs it will have to pay for buying gas it uses to manufacture liquefied petroleum gas (LPG) and petrochemicals businesses.

Commenting on the gas price increase, fertiliser maker IFFCO managing director US Awasthi said, "Since the hike in the gas price has been given to bring investments in order to increase the gas production indigenously, the same philosophy should be applied to fertiliser industry. The fertilisers
should be freed from the control of government and treated as the part of market driven economy."

The government, he said, should also develop means like direct cash transfer to provide subsidy or support to the farmers directly.

"Currently, the industry is facing problem of delay in payments. This price rise will further accentuate the problems of the fertiliser industry which will further affect the fertiliser industry adversely," he said.

Reliance Industries, another major beneficiary of the decision, rose 3.78 per cent to close at Rs 861.85 on the BSE. ONGC surged 2.98 per cent to close at Rs 330.10 while OIL was down 0.49 percent to Rs 570.20. The benchmark S&P BSE Sensex climbed 2.75 percent.

PTI


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