The government may sell 10% stake in Indian Oil Corporation (IOC) by early July encouraged by the recent improvement in the market sentiments on the stock following its decision to fully bear fuel subsidy burden in FY16, sources said.

A 10% stake sale in IOC could fetch R8,800 crore at the current market prices. The IOC scrip was trading in the range of R360-370 in the last few days, almost the same level when the Modi government came to power on May 26, 2014. The counter closed at R364.05 on Tuesday, down 0.18% from the previous close.

Despite the initial hesitation, the petroleum ministry has indicated their readiness for the share sale in IOC in a couple of months after subsidy sharing formula for FY16 was finalised recently, a finance ministry official told FE.
A ministry official said the IOC disinvestment should take place “in the next two-three months”, as the environment is conducive to attract investors.

In a recent meeting between finance minister Arun Jaitley and petroleum minister Dharmenrda Pradhan, it was decided that the government would bear a susbidy of R18 for every kg of subsidised LPG. This means, for every 14.2 kg domestic refill, the government would foot a bill of R255.60, higher than the actual under-recovery of R200.

“The government would continue to pay a subsidy of R18/kg. And the over-recovery would be deposited in a pool account of the oil-marketing companies. The corpus would be utilised in case crude price shoots up and there arises a need for more subsidy support from government,” explained the official.

Considering an average crude oil price of $65/barrel, Jaitley in his Budget for FY16 estimated the petroleum subsidy at R30,000 crore, 50.22% less than the revised estimate of R60,270.00 crore for 2014-15. The 2015-16 Budget estimated India’s subsidy bill at R2.43 lakh crore, around 9% below the revised estimate of R2.66 lakh crore for 2014-15. The reduction has been aided in part by the fall in the price of crude oil.

Without any large stock like CIL, the government was hoping stake sales in ONGC and IOC would help raise almost half of the R41,000-crore disinvestment revenue targeted from minority stake sales in PSUs this year.

However, the plan to sell a 5% stake in ONGC would have to wait till the share price recovers. The ONGC scrip closed at R341.90 on the BSE on Tuesday. Though the ONGC counter has recovered from a low of R301 on March 27, it is still 15% lower than the R405 on May 26, 2014.

For IOC, the subsidy math is clear. The price of petrol and diesel are market-determined and industry does not see a reason for the Centre to bring them back under control until crude price shoots more than $100/barrel.

Sharing the euphoria
* A 10% stake sale in IOC could fetch R8,800 crore at the current market prices
* The IOC scrip was trading in the range of R360-370 on the BSE in the last few days
* Oil ministry indicated readiness for the IOC share sale after subsidy sharing formula was finalised
* However, the plan to sell a 5% stake in ONGC would have to wait till the share price recovers

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