Return
to Story Page
To print: Select File and then Print from your
browser's menu
Strategic alliances seem to be all the rage in the oil sector. First it was the strategic alliances between either HPCL or BPCL and OIL, and then it was the chance of the two giants Indian Oil and ONGC. The pipeline major Gail has now entered this alliance game and has tied up with IOC and IBP.
What has prompted the government to let loose this frenzy of alliances? The answer lies perhaps in the inability of the government to divest its stake. Against a target of Rs 5,000 crore for disinvestment the government has managed to get only Rs 225 crore from divesting part of its stake in Concor. After much deliberation the government has come across with the convenient idea of the inter-company equity swap. As a carrot to these public sector oil companies the government has allowed them to enter into strategic alliances, which were earlier taboo.
Do these strategic alliances make sense? Firstly, there is no denying the fact that for obtaining permission for strategic alliances, the companies are paying a veryhigh price. In order to pick up a stake in IOC and GAIL, ONGC not only has to pay from its internal accruals, but also has to borrow to satisfy the government's never ending thirst for funds. A fall out of the equity swap has also been the drop in the pricing of Gail's GDR. Further, by picking up the equity at huge premiums, the returns for the companies are negligible. The main advantage of the strategic alliances will be that the companies can benefit from each other's strength. But this could have also been possible by allowing a merger between the companies. A merger would have resulted in lower costs by eliminating overheads and having much better synergies in the existing line of business. This is not possible in the case of strategic alliances, which will be for new projects.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------