Extracting value: ONGC's bet on new technology and a slew of overseas ventures seem to be paying off
28 RANK	MVA: 1,167 EVA: 17 MVA and EVA in Rs crore

Not that ONGC is anywhere near being a minnow. Last year, it earned a net profit of Rs 6,200 crore on a turnover of Rs 24,867 crore and topped BT 500 by emerging as India's most valuable company (market capitalisation for April-September 2002: Rs 48,982.11 crore). But big profit-ONGC's incidentally was the highest in India Inc. last year-or market capitalisation aren't the only yardsticks by which Raha would like ONGC to be measured. There are even better things going for the company that he has been heading for the past 22 months. Its report card in the current BT-Stern Stewart study is exemplary. From having the dubious distinction of being the biggest value destroyer (it was bottom of the class at rank 500 last year), ONGC has emerged this year as the biggest wealth creator among the 500 companies that the study surveys. It gained Rs 24,258 crore in market value added (MVA), four times as much as Indian Oil Corporation (IOC), another state-owned oil major, which with a Rs 4,880-crore gain in MVA, was the second highest gainer. ONGC's gain in terms of economic value added (EVA) too was an impressive Rs 596 crore over last year, making it the fourth largest gainer.

How did ONGC make that turnaround happen? Before we get there, let's zap back to the nervous 1990s. Raha, then a senior manager in IOC, recalls how the petroleum giant saw its crude production drop 10.44 per cent from 30.35 million tonnes in 1990-91 to 26.18 million tonnes in 1999-2000. This was also a period when ONGC extravagantly exploited the offshore Bombay High oilfields, producing gas, far in excess of the standard permissible limits. Against the 80:1 norm for gas to oil production, ONGC exploited Bombay High to the hilt, hitting a 400:1 ratio, which eventually led to the decline of the Bombay High fields. Worse, ONGC's exploration activities came to a virtual halt because of very few investments on the exploration and production front, thus affecting its long-term production prospects. Things came to such a pass by the end of the 1990s that the chorus demanding ONGC's privatisation reached a crescendo.

Subir Raha, CMD, ONGC: The focus is now on vertical integration

Three-Point Programme

May 2001. Enter Raha. One of the first things the electronics engineer who'd spent a career at IOC, in functions as diverse as human resources, business development, information technology, and corporate communications, did after he took charge was to spend half-a-year brainstorming with managers and workers at the petroleum company to find efficient ways of operating in an increasingly competitive environment. Says Raha: ''ONGC had reached a stage where it could not afford to stagnate; it either had to grow or fall by the wayside." He began by identifying three core objectives that could put the company in the same league as giants like the Exxons and the bps of the world. The first of those objectives was to double ONGC's reserves from 5.77 billion tonnes of oil and gas to 12 billion tonnes by 2020. Next, it would need to enhance its recovery level (the quantity of crude oil recovered from the oil well) from 26 per cent to 40 per cent. And, third, it would need to source 20 million tonnes of oil and gas through equity partnerships abroad.

"Achievable" and not merely "desirable", is how Raha explains his targets. But the three objectives were just one part of his programme for the petroleum leviathan. Restructuring was the other one. From a slow-moving, rule-bound organisation-after all, till as late as 1994, ONGC was still a commission (and not a corporation) functioning as a part or division of the oil ministry-Raha wanted to make it a more goal-oriented, accountable and responsive organisation. So he ushered in a welter of changes-down-the-line empowerment of managers as well as higher accountability levels. "While on the one hand it meant that officers had more authority to get their work sanctioned, it also meant that they could not hide their incompetence behind the cloak of delay in the transfer of documents,'' contends Raha, a one-time human resources manager.

Redeveloping Bombay High was next on Raha's agenda. The two-phase programme, which cost a hefty Rs 8,129 crore, has already started paying back. In the third week of March, Bombay High produced 2.59 lakh barrels of crude a day, its highest in five years. Encouraged by the results, Raha has increased the target for Bombay High to 1 million tonnes per month or 75 lakh barrels per day. Ramping up productivity is not confined only to Bombay High. Last August, Raha announced a new theme-'Well flowing well'-which essentially means ensuring that every individual oil well, once drilled, performs at maximum efficiency. That may sound like a truism but is at ONGC, which has seen years riddled with wastage and inefficiency, a radical change in mindset.

Rejigging The Corporation

Raha is also augmenting the oil major's sources with a major expansion drive overseas. ONGC Videsh, a subsidiary company, is spearheading this move. Already ONGC has invested Rs 8,330 crore in Russia's Sakhalin-1 project, which is estimated to hold 307 million tonnes of oil and 485 billion cubic feet of gas. It has also acquired a 49 per cent equity stake in two oil blocks in Libya and a 25 per cent stake in the Greater Nile Project in Sudan for Rs 3,430 crore or $700 million. In the pipeline: at least seven more global oil equity deals in Myanmar, Iran, Iraq, Kazakhstan, South Korea, Libya, and the US.

Then, of course, Raha has focused on ONGC's housekeeping. Last year, by depositing Rs 1,800 crore in the State Bank of India as part of the Site Restoration Fund, which is kept aside for the development of oilfields after exploration-related activities are over, he saved Rs 700 crore in corporate tax, and another Rs 300 crore in interest cost was saved by pre-paying foreign currency loans from the International Monetary Fund (IMF). For the record, ONGC has today become a debt-free company.

Arguably, Raha's biggest challenge has been in bringing about a mindset change among the corporation's 18,000 managers and workers. It took time and involved lots of nurturing, but today ONGC is probably a far more transparent organisation than it was even a couple of years ago. When ONGC launched an internal website and CMD's forum asking the workers for their suggestions, initially, there was a deluge of mails-2,500 in the first three months. And although, that first blush of enthusiasm has died down, there are 10 mails that the CMD gets from employees, including ordinary workers and internal vendors, listing grievances and offering suggestions. "Today, it has reached such a stage that if a worker does not have a spanner and his work is getting affected, he writes to us,'' says Raha.

Raha has also plumped for technology. In June 2002, he launched a massive programme to upgrade infotech and communications throughout the sprawling corporation, which will spend Rs 1,800 crore over the next three years to improve and technologically enhance machinery by installing high-speed computers, advanced software and shallow and deep drilling rigs. With reserves to the tune of Rs 2,100 crore (up from Rs 1,900 crore in 1998-99), ONGC can afford to do that. The idea was not to allow the ONGC funds to lie idle in the banks but to create assets out of it. "But isn't assetisation of funds what business is all about?" asks Raha.

The Risks Of Drilling

Yet Raha's biggest gamble is ONGC's foray into deep sea drilling, an activity marked by high costs and equally high risks. What's worse, the corporation has little experience in it. Still, Raha plans to invest around $1.5 million (Rs 7.2 crore) per day in deep sea drilling with 25 shallow water rigs, two deep water wells, support vessels and helicopters. With work slated to begin next winter, Raha is unfazed. "We will be sourcing technology, sourcing experts, set up multi-disciplinary teams... we have been working on this project for more than a year now.'' Adds Satyam Agarwal, analyst at Motilal Oswal Securities: "Given its track record over the past few months, ONGC has proved that it is now better able to read and manage its production growth risks. However, this will now have to be supported by tangible delivery.''

On another front, there's an effort to vertically integrate its businesses-from mere oil exploration and production to downstream activities like refining. Last year, ONGC acquired a controlling stake in Mangalore Refinery and Petrochemicals Ltd and now wants to open a countrywide retail outlet network. "The whole point of integration," says Raha, "is that you operate across a number of business cycles and, because of that, on an average you are assured of a healthy financial situation.'' Lalit Ahluwalia, Director, Ernst & Young, believes that by becoming a vertically-integrated company, ONGC will be able to have a higher price-earning ratio, which will be looked upon favourably by pure investors. Of course, if that is true, you could expect a further nudge upwards for the market valuation of the company. You could also expect Raha to be pleased.