OREANDA-NEWS. July 29, 2011. Oil & Natural Gas Corp (ONGC) reported a 12% increase in its net profit at 4,095 crore in the first quarter of 2011-12 despite 118% jump in itssubsidy burden to keep auto andcooking fuel below market rates.

The company has given 12,046 crore subsidy discounts to state-run refiners this quarter to compensate them for selling diesel, kerosene and cooking gas below market rates,ONGC chairman & managing director AK Hazarika told reporters.

"The company's incremental profit would have been 6,878 crore more this quarter (if subsidy was not offered)," director-finance DK Saraf said. ONGC reported 19% growth in its top-line this quarter at 16,268 crore because of higher crude oil output, but its net realization rose marginally by 1.5% at USD 48.76 a barrel due to a high subsidy discount.

Hazarika said the company's this quarter profit does not included 546 crore royalty payment on behalf of its partnerCairn India for the Rajasthan block crude oil output as the matter was disputed.

"We have been reporting profit without considering cost recovery though it is our contention that royalty in the Rajasthan block is cost-recoverable. As it was disputed, we have been paying royalty without making it cost-recoverable," he said.

The government has recently cleared USD 9.6-billion Cairn-Vedanta deal on condition that Cairn would agree to treat royalty amount paid for crude produced from its Rajasthan field as an expenditure before sharing profit between partners.

ONGC, a 30% partner of Cairn in the block, has been paying 100% royalty amount as per a 15-year-old contract. The government accepts the royalty obligation of ONGC but cites the same contract, which treats royalty cost-recoverable. Cairn, the operator of India's biggest onland oil field, holds 70% stake in the block.