S Sharma, chairman, ONGC,  says he is relieved that crude prices are easing as it would reduce the company's under-recoveries and subsidy burden. He added that the steep increase in subsidy burden in Q2 had led to decline in net profit. Its Q2 standalone net profit was down 5.67 per cent at Rs4,808.41 crore down from Rs5,097.48 crore, in th Q2 2007, even though standalone net sales rose to Rs17,499.62 crore compared with Rs15,413.92 crore, in the same period last year.

Sharma informed CNBC-TV18 that he was in talks with the ministry requesting for subsidy sharing beyond realisation of USD 70 per barrel of crude oil. He looks forward to better stability and clear mechanism for subsidy sharing. 

Here is a verbatim transcript of the exclusive interview with S Sharma on CNBC-TV18. Also watch the accompanying video.

Would you expect to see lower subsidy sharing given how much crude has come off in the second half, which would compensate somewhat for this quarter's payout?
This quarter's payout has gone up very steeply. Last year for the same quarter our subsidy burden was Rs3,799 crore, which has gone up to more than Rs12,600 crore. So that's a quite a steep increase and that has predominantly caused a fall in our net in this quarter results.

What do you expect given the price of crude for the next couple of quarters in terms of subsidy payout?
As of now if we look at the way it has been decided in absolute ad hoc manner for this quarter. I only look forward to get a better stability and to have a clear mechanism. The government has been concerned and a very high level committee was constituted, B K Chaturvedi committee, which has given recommendations, too. So, I hope those recommendations get implemented as quickly as possible. 

So for the next quarter what are you working with at this point in terms of average price realisation post subsidy?
First of all on a day-to-day basis it is getting difficult to make predictions where the market is moving. But taking a long-term view, the fundamentals suggest that crude prices had started coming down, but they have again started moving up.

Thus, it is difficult to say where the crude prices are heading. I only hope that if prices come down, it is good for the industry that, the total under recoveries are lower and everybody feels comforted. So in ONGC, we feel that with lower prices, the under recovery should be lower and the subsidy sharing also should be accordingly lower for us.

Our calculations show that for the first half of this financial year, you have borne about 57 per cent of the entire burden. Have you made any presentation to the ministries about the way oil prices have come off and what the re-worked formulae should be or what kind of burden ONGC should share for the second half?
Yes, we have been having regular meetings in the ministry and we had made a very detailed presentation to (the) B K Chaturvedi Committee too and based on that - the recommendations state that the upstream companies should be made to share the subsidy burden only beyond a crude price of $75 per barrel.

And unfortunately for Q2, our net realisation has come to only $46 per barrel. That's a big aberration; I do hope this aberration will get addressed in the Q3 and in the subsequent periods.

Subsidy sharing is one part of the problem with your earnings. Do you expect to see erosion in net profit because of the net realisations, as that has far lowered than the price of crude? Do you see your earnings coming down because your realisation from lower crude prices also remains at fairly depressed levels?
Higher subsidy burden is the sole reason for the net realisation to come down. Our production levels are sustained despite our major fields are on the decline. In fact, on Thursday, the board also approved our budget for the next fiscal and we are projecting production increase to happen in the next fiscal as we are putting in some of the new fields in production.

But for this price and for this subsidy sharing, I do not see any reason for our net to go down.