The new financial year has just begun but sections of the government, including the nodal disinvestment department, have already come to question the feasibility of this year’s all-time-high stake sale target of Rs 69,500 crore.
According to sources, the disinvestment department has apprised the budget division in the finance ministry of many developments that could potentially disrupt the pace of the disinvestment, chiefly the petroleum ministry opposing the stake sales in oil PSUs ONGC and Indian Oil Corporation (IOC), citing the absence of any guarantee that the subsidy yoke will be taken off their shoulders.
The government has been consistently missing by wide margins the Budget targets for stake sale proceeds for the last few years, even as it used to exude confidence during the final few weeks of the year that they would be met.
Despite the FY15 disinvestment proceeds being less than half of the target of R58,425 crore at R24,277 crore, the Narendra Modi-led government, stung by the subdued growth in tax revenue, has set an ambitious target for the current financial year and also expanded the ambit of the stake sale programme by including, apart from sale of residual stakes in private firms, ‘strategic disinvestment’.
The disinvestment department, even after securing Cabinet approval for sale of stakes in eight PSUs including ONGC, Power Finance Corporation, RINL, NHPC and Hindustan Aeronautics, is wary about the timing of some of these issues, given that the stocks of some of these PSUs and others in the pipeline are “beaten down”.
“Beyond a point you can’t do anything….power, petroleum and metal stocks have been beaten down. In some cases, the administrative ministries have opposed (the proposed sales),” an official source told FE.
Besides the fall and volatility in crude oil prices, the ad-hoc subsidy-sharing mechanism was hurting the plan to sell 5% in ONGC and 10% in IOC. The stake sales in these two maharatna PSUs, even at the current market prices, could fetch half of the Rs 41,000 crore revenue targeted from PSU disinvestments in the current fiscal year. “It makes no sense to sell ONGC shares now,” the source said. A 5% stake sale in ONGC would fetch about Rs 13,700 at current market prices; the amount could have been higher by Rs 5,000 crore had the stake been sold in late 2014. ONGC share price closed at Rs 320.45 on Monday, down 0.4% from the previous closing.
According to the Budget plan, another Rs 28,500 crore would be raised from ‘strategic disinvestment’ that includes sale of residual government stake in some private companies including Hindustan Zinc and Balco, privatisation of some loss making as well as profit-making PSUs and sale of a portion of SUUTI stakes in companies namely Axis Bank, ITC and L&T.
While the ministry of petroleum has opposed disinvestment in any oil PSU citing poor valuation under current market conditions, the ad-hocism in subsidy-sharing mechanism was also not helpful. While the decision of the government to bear the entire subsidy on cooking gas in FY16 (as stated by the petroleum secretary Saurabh Chandra on Tuesday) is a big positive for upstream companies such as ONGC, analysts say a permanent solution to the subsidy-sharing formula is still needed to give confidence to investors.
ONGC, Oil India and GAIL (India) — forked out Rs 42,822 crore for the oil subsidy in FY15. The government paid another Rs 27,409 crore towards compensating OMCs. The subsidy burden on upstream oil companies had increased from Rs 32,000 crore (30% of the total under-recovery) in 2008-09 to Rs 67,021 crore (48%) in FY14.
With no big-ticket share sale lined up like that of Coal India, which fetched 92% of the Rs 24,277 crore disinvestment revenue in FY15, the government should go ahead with the sale of government’s residual stake in Axis Bank, ITC and L&T, another official said, ruing lack of progress in this case also. Sale of stakes in these three companies could fetch Rs 57,879 crore to the government at current market prices, but ‘strategic issues’ hamper progress on this front.
Stake sale in private companies such as Hindustan Zinc are stuck due to litigation. Officials are also not hopeful of getting much revenue from privatisation of loss-making units, given that in their case, it takes a year to complete the legal process. In most cases, the amounts that could be raised would be less than Rs 10 crore. With states like Odisha opposing 10% share sale in Nalco, the plan to privatise profit-making companies is also impeded, officials said.