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Oil companies are investing despite subsidy blow

Ajay Modi/New Delhi 25 Nov 12 | 12:12 AM

Though the fuel subsidy burden has seen a consistent rise, this hasn’t deterred public sector companies in the oil sector from lining up huge investments. While the government bears about 60 per cent of the fuel subsidy burden for petroleum, it doesn’t invest in the sector. It is the government-owned companies that are investing from internal resources. The investment assumes significance, given the backdrop of a highly volatile crude oil economy and the growing dependence on imported crude oil and natural gas.

Upstream oil company Oil and Natural Gas Corporation (ONGC) leads the pack, with an investment outlay of Rs 1,63,956 crore for the 12th five-year Plan. During the Plan period, the company would focus on core exploration and oil and gas production, in India and abroad. ONGC would intensify exploration and production activities in frontier areas. It is also planning to exploit unconventional sources of energy and develop alternative ones.

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ONGC Chairman Sudhir Vasudeva attributes the slow domestic investment scenario to local issues and global economic uncertainty. “The world economy is changing, albeit a little slow. Fortunately, economic strength is more visible in emerging economies, something favourable for India. ONGC’s investment and production plans, which envisage producing about 60 million tonnes of oil equivalent to more than that in the 11th Plan, would certainly play a significant role, as far as boosting the investment growth in the country is concerned," he says.

Oil India Limited (OIL) plans to invest Rs 19,000 crore in the 12th Plan. This would primarily go towards exploration, development, capital equipment and foreign acquisitions. In the 11th Plan, it had invested only Rs 9,322 crore, against the outlay of Rs 13,439 crore.

Indian Oil, Bharat Petroleum and Hindustan Petroleum, though hard-pressed due to abnormally high borrowings and lower profits (both arising out of the government’s slack subsidy compensation mechanism), are lining up sizeable investments to increase refining capacity and other value-added segments like petrochemicals.

While IndianOil, the largest refining and fuel marketing company in the country, along with its subsidiary, Chennai Petroleum Corporation, plans to invest Rs 71,846 crore in the 12th Plan, Bharat Petroleum plans to invest about Rs 32,000 crore towards upstream activity and refining expansion.

In a segment dominated by public sector companies, private firms are also stepping up investments. Reliance Industries Limited (RIL) has firmed up plans to invest Rs 1,00,000 crore over the next five years, chairman and managing director Mukesh Ambani had said in June. Through the last couple of years, the company invested about Rs 15,000 crore in shale gas assets abroad. The company’s domestic investment plans, however, continue to be plagued by delays in securing approvals.

Manish Sonthalia of Motilal Oswal Asset Management Company says, “RIL has an off-gas cracker and pet coke re-gassification project. These projects, which would be commissioned in two to three years, would need an investment of $9-10 billion (about Rs 55,000 crore). The major portion of the cash flow (and cash and investment holdings) would be invested in these projects."

Through the next two years, Vedanta Group company Cairn India would invest about Rs 11,000 crore in exploration and development. This would include increasing output from the Barmer refinery to 3,00,000 barrels a day, against the current 1,75,000 barrels a day.

Essar Oil is planning to invest about Rs 3,000 crore in its Raniganj coal bed methane gas project. Earlier this year, it had completed the expansion of its Vadinar refinery at a cost of Rs 10,000 crore.

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