Barely two weeks after the Government sold its 5 per cent stake in Oil and Natural Gas Corporation Ltd (ONGC) through a controversial auction process that was bailed out by Life Insurance Corporation of India (LIC), the Finance Minister raised the cess on domestic crude oil from Rs 2,500 per metric tonne to Rs 4,500 per metric tonne, pushing the stock price of the company down by over 6 per cent during the day.
The Budget invoked the Oil Industry (Development) Act, 1974, to announce the hike in the rate of cess leviable on indigenous petroleum crude oil.
The ONGC auction on March 2 witnessed poor response from the investment community (domestic and foreign) but for LIC, which came out in the open to subscribe to almost 90 per cent of the shares on offer and that, too, at a premium of 4.5 per cent to the floor price of the offer.
The share price movement of ONGC, Oil India, Cairn India and RIL clearly reflected the impact as they fell between 3.3 per cent and 6 per cent at the Bombay Stock Exchange today after the announcement. While the biggest loser among them was Cairn India, which saw a 6 per cent fall in its share price, the ONGC share, at Rs 273.30, was down 4.7 per cent at close. This was 9.9 per cent lower than the cost at which LIC had bought the share.
Therefore, LIC, which acquired 37.7 crore shares of ONGC in the auction at Rs 303 per share, is sitting on a notional loss of over Rs 1,100 crore.
“When the floor price was Rs 290 and there was hardly anyone bidding, why did LIC bid at a premium of 4-4.5 per cent (average price of Rs 303.67)? LIC needs to justify that,” said Arun Kejriwal, a senior analyst and market expert. “I think collective action is needed to bring the people to task and make them accountable. We are thinking of action by bringing a large group of LIC policyholders together and going to court.”