The Hindu Business Line : Ministries still to agree on mode of divesting in OIL

OIL India Ltd (OIL) may have to wait a while before it is able to come out with an initial public offering (IPO). The differences between the Ministry of Petroleum and Natural Gas and the Ministry of Finance are yet to be sorted out.

"We have given our response to the Finance Ministry and only after they get back that a decision will be taken," Petroleum Ministry sources told Business Line.

Currently, the Government's stake in OIL is 98.13 per cent, with remaining equity being owned by the employees of the company.

Though there is a consensus between the two Ministries that the equity in OIL should be diluted, differences have emerged regarding the method to be adopted - whether it should be disinvestment of Government equity or infusion of fresh equity into the company through an IPO.

While the Finance Ministry was of the view that the IPO route should be adapted to divest 15 per cent Government equity in the company, the Petroleum Ministry wanted the new issue proceeds to go to OIL.

"If the proposal of Finance Ministry was accepted then the IPO proceeds would go to the Government account rather than to the company," sources said.

The argument put forth by the Petroleum Ministry was that the funds from the IPO could help OIL in expanding its operations. The company has plans to double its production capacity and hike its gas output. This, according to official sources, can be achieved through improving production of the existing capacity, expanding production from blocks acquired as well as through acquisitions.

Regarding the proposal of Indian Oil Corporation buying Government stake in OIL, sources said, it has been put on hold as the Ministry wanted to preserve the independent identity of OIL. However, the probability of a combination offer like the recent NTPC one, which combined offloading of Government stake and raising fresh equity, does not appear to be under consideration.

According to oil sector analysts, the proposal to expand the company's operations was a key to improving valuation for the company.

"Although OIL is not at a disadvantage when it comes to getting a good price for its oil, and also bears the kerosene and liquefied petroleum gas subsidy burden just like ONGC, it is looked at as a predominant player in the North-East and not as a national company. The markets would be more interested if this perception of the company changes," said a senior analyst.

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