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ONGC to draw down on reserves to meet CAPEX needs
It is probably for the first time in ten years that ONGC will be taking a loan for funding its domestic operations. ONGC is looking for some relief in the next fiscal when it expects gas prices to be revised upwards.

The Oil and Natural Gas Corporation (ONGC) will dip into its carefully accreted cash reserves to meet its capital expenditure needs for the remaining part of fiscal 2013-14 and fiscal 2014-15.

The upstream oil explorer faces tremendous challenges ahead ranging from decreasing yield from ageing fields in western offshore and to fund the subsidy burden the government inflicts on behalf of oil marketing companies. The cash rich company may have to resort to bank borrowings for funding its domestic operations.

Out of the cash reserves ONGC will dip into, a substantial part of Rs 5000 crore towards deficit financing and another Rs 4000 crore shouldering current liabilities. There is also the onus of acquiring a stake in the downstream refiner Indian Oil Corporation Ltd.

ONGC’ s cash reserves were over Rs 13,000 crore as of 31 March. The CAPEX plan of ONGC is estimated at over Rs 35,000 crore for the current year and Rs 36,000 crore for the next year. On government’s prodding, ONGC needs to pick up a 5 per cent stake in IndianOil, part of a disinvestment programme of the government to raise funds for the exchequer.

It is probably for the first time in ten years that ONGC will be taking a loan for funding its domestic operations. ONGC is looking for some relief in the next fiscal when it expects gas prices to be revised upwards. Domestic gas prices are set for a revision from 1 April this year. The anticipated hike of gas price to US $ 8 per million British thermal units (mmbtu) is a considerably big take for the explorer as current prices are ruling at US $ 3.75 per mmbtu and US $ 5.73 per mmbtu.

ONGC has managed to raise money for its subsidiaries ONGC Videsh Ltd (OVL) and Mangalore Refinery and Petrochemicals Ltd. But it still may go to banks to raise money to fund domestic operations, the source said.

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