STUMBLING BLOCK

New Delhi, June 3: Doubts have arisen over ONGC’s follow-on public offer (FPO) slated for early July.

The government is in two minds now as a number of critical issues have remained unresolved such as the royalty on Cairn India’s Rajasthan fields and subsidies to PSU oil retailers. Besides, the volatile markets have added to the uncertainty over the timing of the Rs 13,000-crore offer

“Lack of clarity on the Cairn India royalty issue, need for a transparent subsidy-sharing formula with the spike in global crude prices and the volatile market condition seem to have forced the government to reconsider the timing of the FPO,” sources said.

The government plans to raise Rs 13,000 crore by selling a 5 per cent stake in ONGC. After the offer, the government’s stake in the PSU will come down to 69.14 per cent from 74.14 per cent.

ONGC officials said, “The firm was ready to enter the market but the department of disinvestment has to decide on the timing.”

They said increased subsidy-sharing burden for upstream companies such as ONGC at 38.5 per cent (against 33 per cent in the last three years) of the total under-recoveries for 2010-11 may not go down well with the investors.

ONGC’s subsidy burden is set to increase with global crude prices likely to average $121 per barrel this fiscal against $113 a barrel in 2010-11. There is uncertainty on the amount of subsidy the upstream firm will have to bear as the government has not made it clear whether the 38.5 per cent is a one-time measure or not.

The FPO was initially supposed to hit the market in March but was deferred to April.

The divestment process seems to have hit a roadblock with the Centre putting off the first roadshow of Steel Authority of India Ltd’s Rs 4,000-crore follow-on offer slated for later this month.

The government plans to raise Rs 40,000 crore this fiscal through divestment. SAIL, ONGC and Hindustan Copper are the three big-ticket firms in the selloff queue.

SAIL’s divestment will happen in two tranches. In the first phase, SAIL will offer 5 per cent fresh equity along with a 5 per cent stake of the government. The second phase will also be for 10 per cent of the enhanced equity, half of which constitute a stake sale by the government.

The Centre intends to divest 10 per cent of its 99.59 per cent stake in Hindustan Copper, while the company plans to issue fresh shares to the extent of 10 per cent.

The government had raised Rs 22,762 crore last fiscal through divestments in different state-run firms, including Coal India, Power Grid Corporation of India, Satluj Jal Vidyut Nigam, Engineers India Ltd, Shipping Corporation of India and Manganese Ore India Ltd.

It has proposed an ambitious divestment target of Rs 95,000 crore from the sale of shares over the next three fiscal years. The budget has projected divestment receipts at Rs 30,000 crore and Rs 25,000 crore in 2012-13 and 2013-14, respectively.