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Balaji C. Mouli

New Delhi , Nov. 28

THE Ministry of Disinvestment has said that Indian Oil Corporation (IOC) should not be allowed to sell its stake in GAIL (India) Ltd and Oil and Natural Gas Corporation (ONGC) since the Government has not yet decided on the strategic sale of the marketing arm of IOC. Further, GAIL and ONGC should not be allowed to sell their stake in IOC, the Ministry has said.

This is part of Disinvestment Ministry's recent response to a Cabinet note circulated by the Petroleum Ministry on allowing IOC, GAIL and ONGC to dissolve a cross holding that was created a few years ago.

In 1998, to help bridge the Government's fiscal deficit, the public sector oil companies were made to purchase each other's Government-held equity.

The companies had paid Rs 4,463 crore in 1998 to buy each other's equity. As part of the cross holding, IOC purchased 9.62 per cent equity in ONGC, 4.8 per cent equity in GAIL.

ONGC, meanwhile, purchased 9.11 per cent in IOC, 4.82 per cent in GAIL. GAIL, on the other hand, picked up 2.4 per cent in ONGC.

At current market rates, ONGC will accrue around Rs 2,000 crore, IOC Rs 10,000 crore and GAIL Rs 2,000 crore from selling their stakes. Together, the entire sale would fetch up to Rs 14,000 crore.

If Disinvestment Ministry's condition is accepted, only ONGC and GAIL would be able to sell each other's stake. The petroleum companies are keen to dissolve the cross holding as this would improve their stock liquidity in the market.

As far as IOC is concerned, it wants to use the sell off money to reduce its debt portfolio. Currently, the company has a debt of Rs 12,000 crore. "If allowed, we plan to sell off around half of our portfolio in ONGC and GAIL. This would amount to around Rs 5,000 crore. Since we have no immediate projects to fund, the monies would be utilised to reduce our debt liability," a senior IOC official said.

Disinvestment Ministry's response indicates that it is optimistic on the outcome of a recent Cabinet decision to "explore the possibility of hiving off the marketing arm of IOC to a strategic partner". The Cabinet put forth this option following a Supreme Court order that stalled the privatisation of Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL). The apex court ordered that the Government obtains Parliamentary approval for the privatisation move. Following the Cabinet decision, the Petroleum Ministry expressed its reservation against hiving off of the marketing arm and instead suggested 20 per cent equity sale in IOC. This, they argued, will serve the purpose of meeting disinvestment targets as well as ensure that post-sale, IOC would remain in Government control.

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