ONGC scripts the turnaround of its subsidiaries, OPaL reports its first profit, Auto News, ET Auto
NEW DELHI: India’s largest oil and gas producer ONGC has scheduled a sharp turnaround in the fortunes of its subsidiaries with its petrochemical unit declaring its first-ever profit, a senior official said.
ONGC Petro additions Ltd (OPaL), the company ONGC started for downward integration and expansion in the petrochemical field using its naphtha stream from Hazira and Uran and C2 + components from imported LNG , has seen a steady improvement in operating profit or EBITDA since 2016-17, but the unbalanced capital structure with high debt service cost and high amortization during the initial funding period resulted in losses sharp.
“During the first half of the current fiscal year (April to September), OPaL achieved an after tax profit of Rs 18 crore,” said CGSB President and CEO Subhash Kumar.
Kumar, who pivoted the story of the turnaround with his background in finance, said OPaL was leaving the SEZ, which would improve profitability by Rs 800 crore per year and around Rs 600 crore in profit. Additional would be added if the government were to approve a proposal for the company to become a unit of CGSB or merge with it.
Oil and Natural Gas Corporation (ONGC) from 2002 to 2006 conceptualized several joint ventures to diversify into activities other than exploration and production (E&P) with an objective of adding value, downstream integration and monetization. of its own stranded gas assets. These projects – OPaL, ONGC Mangalore Petrochemicals Ltd (OMPL) and ONGC Tripura Power Company (OTPC) have been successfully implemented and are now operating at full capacity.
CGSB, as the promoter, played a leading role in the selection of LSTK / PMC contractors, the execution of various raw material and removal agreements, the resolution of various complex techno-commercial, regulatory and tax issues. that crept in during the execution and commissioning of these projects. In addition to solving operational, financial and regulatory issues, it has enabled joint ventures to be led by the best professional experts in the industry.
Kumar said that according to the CGSB 2040 strategy, in the future, 70% of the revenues should come from the refinery and petrochemical activities and 10% of the profits will come from the non-oil and gas sector, and therefore the role of these joint ventures. non E&P will continue to play a crucial role in the Group.
ONGC has a 49.36 percent stake in OPaL’s 1.1 million tonnes per year capacity, GAIL 49.21 percent and GSPC the remaining 1.43 percent.
“ONGC has played a pivotal role in the history of OPaL’s turnaround from assistance during the construction phase, stabilization and continued supply of raw material to its plant, which is crucial to the profitability of any plant. petrochemical company. In addition to an equity contribution of Rs 998 crore, ONGC also subscribed to warrants issued by OPaL for an amount of Rs 3,451 crore, “he said.
The company also alone supported CCDs Rs 7,778 crore and provided comfort letters amounting to Rs 9,500 crore for loans, he said.
OTPC, in which ONGC holds 50% of the capital, has set up a 726.6 MW gas power station in Tripura. The factory started its activities in March 2014.
Kumar said the OTPC is a classic case of an efficiently managed entity. During the project phase, in order to avoid delays, all of the oversized cargo (ODC) was shipped via Bangladesh. Plant has been generating profits since its inception and is one of the few gas companies to pay dividends.
The OTCP covers approximately 30% of the electricity needs of the entire Northeast region at a competitive rate. It is the main customer for ONGC’s gas sampling in Tripura, taking around 60% of the total gas production and thus using the gas stranded in the region, unlocking the value of Rs 700 crore per year.
Thanks to these investments, the state of Tripura became a surplus of electricity compared to a state with lack of electricity, which made it possible to export electricity to Bangladesh.
So far, with a capital investment of Rs 560 crore, ONGC has received approximately Rs 310 crore in dividend and Rs 106 crore in premium on the sale of residual equity to GIP in 2015.
Petronet MHB Ltd is another classic turnaround story in which ONGC, as a promoter, played a crucial role in transforming a loss-making entity into a dividend-paying entity. Through continuous guidance at board level and effective management, the company is consistently making profits, even during the pandemic period. ONGC earned a total dividend of Rs 208 crore on a total investment of Rs 274 crore.
In the case of OMPL, the stand-alone petchem unit was subject to small deviations due to the cyclical nature due to the supply / demand dynamics in the region. To remedy this, ONGC initiated a merger of the company with its refinery subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL).
“The presence of ONGC throughout the value chain and beyond the E&P activity is also an effective means of mitigating the risks. The ONGC group is able to better protect itself from the volatile crude markets, because the combined entity will be exposed through the commodity cycles, ”he said.
The company had acquired the government’s 51.11% stake in HPCL to expand its presence in the middle and downstream sectors. “Going forward, ONGC’s major stake in HPCL and PL will become the determining factor in maximizing shareholder value,” he added.