Anxious to impart momentum to the disinvestment process, the Narendra Modi government is devising ways to expedite the stake sales in oil PSUs and one of the options being considered is to create a holding company of upstream and downstream companies.
The move is prompted by the fact that upstream companies ONGC and Oil India are witnessing subdued market valuations on low crude prices, while the stocks of PSU oil marketing companies are at robust levels thanks to the decontrol of diesel and petrol and timely receipt of subsidies. IOC and BPCL stocks rose and closed at R444.90 and R963.60, respectively, on Monday. In the intra-day trade, both the stocks had touched 52-week highs.
The idea of a holding company for oil PSUs was mooted in the past too, but analysts were sceptical about the feasibility of the move, given that these firms compete/trade among themselves.
The planned stake sales in oil PSUs could fetch more than half of the PSU stake sale target of Rs 41,000 crore for the current fiscal. The total disinvestment proceeds, including residual stake sales in private firms and the SUUTI stake sale, are projected at Rs 69,500 crore for FY16.
“We are looking at creating a holding company for disinvestment in oil companies. This will help us complete the divestment in these firms expeditiously,” a finance ministry official said.
As per the plan, the government would sell 5% stake in ONGC, 10% in IOC, 10% in Oil India and 3% in BPCL. However, the government seems to have put on the back burner a plan to sell its stakes in private companies held through the Specified Undertaking of Unit Trust of India.
The government was also working on a dynamic subsidy-sharing formula with upstream oil companies to ease investors’ concerns, the finance ministry official added. Upstream companies’ subsidy burden, which had increased steeply in recent years, is set to be mitigated. The subsidy burden on ONGC will be much lower than last year this fiscal, thanks to the decontrol of diesel, direct benefit transfer for LPG subsidy and the government’s commitment to bear a larger part of the subsidy onus.
On Monday, finance minister Arun Jaitley held a meeting with finance secretary Rajiv Mehrishi and disinvestment secretary Aradhana Johri to review the divestment road map. Another meeting, sources said, was likely this week.
The ONGC scrip closed at R291.75 on Monday, a decline of 36% from its 52-week high of R458.95 on September 9, 2014. The Oil India’s counter has also declined by 34% during the period.