State-owned Oil and Natural Gas Corp (ONGC) is expected to report a loss worth Rs 4,000 crore. This comes after the government cut the natural gas prices by 26 percent as against the rates other gas-surplus nations.
Prices of natural gas used to produce fertilizers, generate electricity, use in automobiles and piped natural gas, cut to $2.39 per million, 37 percent lower than the cost of production by the British thermal unit on April 1.
"These rates are unsustainable for us. We have already told the government that the gas pricing should be freed. There should be complete pricing and marketing freedom," ONGC Chairman and Managing Director Shashi Shanker said.
In October 2014, the government had introduced a new pricing formula based on rates followed in gas surplus nations like the US, Canada, and Russia to decide a price in a net importing country. Prices were then calculated semi-annually.
In a written reply in the Lok Sabha on March 20, 2017, Oil Minister Dharmendra Pradhan, had stated that the cost of production of natural gas in the prolific Krishna Godavari basin is between $4.99 - $7.30 per mmBtu. The same for other basins is in the range of $3.80 - $6.59 per mmBtu, he had said.
"The rates are now way below cost," Shanker said.
On April 1, the gas price was slashed from $3.23 per mmBtu to $2.39 - an 84 cent fall which led to an annual revenue loss of ₹4,000 crore.
ONGC's gas constitutes about half of the company's bottomline and if it incurs losses, the company may soon even generate cash losses.
The slash in gas prices in April was the second in six months and the lowest since the new pricing formula came in 2014.
ONGC is India's largest integrated oil and gas company, which accounts for 75 per cent of crude oil and natural gas production by volume, and 17 per cent of domestic refining capacity.