The Telegraph
Since 1st March, 1999
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Oil stake sale runs burn risk

New Delhi, Nov. 22: Indian Oil’s plan to offload its 9.6 per cent stake in ONGC may spark another political controversy.

The plan will have to pass the litmus test of the Left, which had been assured by the government that there would be no divestment in navratna companies and that the energy sector had been identified as strategic.

However, senior IOC officials told The Telegraph that the company has already paid the government for the 9.5 per cent stake in ONGC.

“IOC is free to sell the stake in the open market and the board of directors has approved the proposal,” they said.

However, IOC is a government-owned company. Dipankar Mukherjee of the CPM, who is a member of the standing committee on petroleum, says, “The sale of IOC shares in the open market could amount to asset stripping. We will have to look into the matter very carefully before approving any such proposal.”

“The government has received the money for the shares and the divestment ‘under the burqa’ was carried out when the NDA government was in power. It is only being formalised now. However, these shares are still assets owned by a navratna company,” he added.

If the Left decides to stonewall the offloading of the ONGC stake in the open market, IOC will have to sell these shares back to ONGC or offload them to financial institutions.

ONGC chairman Subir Raha has already said his company is keen to buy back the shares. Interestingly, ONGC is not interested in selling the 9.1 per cent stake that it owns in IOC.

IOC has seen its profits plummet this fiscal and is keen to raise money to finance its expansion plans and meet its capital expenditure. The 9.6-per-cent stake in ONGC is valued in the region of Rs 14,000 crore at current market prices.

However, the company would not be selling its stake in one lot as this would result in depressing the share price. The strategy would be to offload them in small quantities, a senior IOC official said. But clearly the Left will be screening the plan very carefully.

The cross-holding of shares between Indian Oil, ONGC and GAIL came into existence in January 1999, as the government wanted to reduce its runaway fiscal deficit. In a way, it was an ingenious exercise as it helped the government raise money without actually parting with the shares of these companies.

As part of this cross-holding exercise, ONGC had acquired a 9.1 per cent equity in IOC and a 4.8 per cent stake in GAIL. Similarly, IOC had also acquired 4.8 per cent of GAIL and 9.6 per cent of ONGC.

GAIL, being a smaller company, had picked up a 2.4 per cent stake in ONGC. The current market capitalisation of these cross-holdings is estimated to be around Rs 25,252 crore.

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