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Evading primary responsibility, ONGC decides to invest Rs 150 billion in sick subsidiary
It is reported that Oil and Natural Gas Corporation (ONGC) will infuse about Rs 150 billion in ONGC Petro-additions Ltd (OPaL) as part of a financial restructuring exercise. ONGC currently holds 49.36 per cent stake in (OPaL), which operates a mega petrochemical plant at Dahej in Gujarat. GAIL (India) Ltd has 49.21 per cent interest and Gujarat State Petrochemical Corporation (GSPC) has the remaining 1.43 per cent.
OPaL is reported to have incurred losses in the past due to lopsided capital structure with high-debt servicing cost. It is said that cost overrun due to delay in implementation of project is the primary reason for it incurring losses . Obviously, delay in implementation and commissioning of the project must have happened due to various reasons and perhaps, including some hidden reasons which have not been shared adequately.
Accumulated losses touched Rs 130 billion on 31st March 2023. As noted by the company’s auditors, OPaL is “facing negative working capital of Rs 70.750 billion as of that date. Net worth of the Company has reduced to Rs 6,207.99 million as at March 31, 2023 as compared to Rs 45,837.20 million as at March 31, 2022. In spite of these events or conditions which may cast doubt on the ability of the company to continue as a going concern, the management is of the opinion that going concern basis of accounting is appropriate in view of the cash flow forecasts and the plant management has put in place along with other facts.”
ONGC’s proposal
It is reported that ONGC would make additional investment that would convert Opal into virtually a subsidiary of ONGC.
While ONGC would spend Rs 150 billion in OPaL, there is no information in the public domain as to what would be the strategy to revamp the unit and place it on the path of profitability. This information is particularly necessary, since the product range of OPaL are extremely important and apparently there are no technical snags in operating the projects. Mere change of product mix by OPaL as part of revamping plan will not provide any significant reduction in loss.
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