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Rediff.com  » Business » Divestment in IOC gets Cabinet nod

Divestment in IOC gets Cabinet nod

August 02, 2013 09:24 IST

ParliamentIn an effort to meet the disinvestment target of Rs 40,000 crore (Rs 400 billion) from public sector undertakings this financial year, the Cabinet Committee on Economic Affairs on Thursday cleared a proposal to offload a 10 per cent stake in state-run refiner IndianOil Corporation.

The government cleared the proposal despite opposition from the petroleum ministry, which says this is not the right time for divestment as the sector is moving from trade parity to export parity pricing.

Besides, there are uncertainties on under recoveries.

The Cabinet also gave its nod to amend the Right to Information Act to keep political parties out of the ambit of transparency law.

The move followed after the Central Information Commission had in June held that six national parties have been substantially funded indirectly by the central government and were required to appoint Public Information Officers as they have the character of a public authority under the RTI Act.

At the current market price, the stake sale is set to fetch about Rs 4,000 crore (Rs 40 billion) for the government.

The company’s shares closed 4.84 per cent down at Rs 195.75 on BSE on Thursday, while the benchmark Sensex shed 0.15 per cent to 19,317.19.

The central government holds a 78.92 per cent stake in the company.

According to industry experts, the government’s move does not have any strategic intend, but is a 'desperate attempt' to meet the divestment target.

“The ministry of petroleum had already raised its concerns regarding the timing.

"However, it’s the government’s call. "We have a serious concern on under-recovery as it’s expected to be about Rs 68,000 crore (Rs 680 billion) during the current financial year,” said P K Goyal, director (finance), IOC.

The overall under-recovery of oil marketing companies (IOC, Bharat Petroleum Corp and Hindustan Petroleum Corp) for the current financial year is expected to touch Rs 1.28 lakh crore (Rs 1.28 trillion).

Through the introduction of export parity pricing, the finance ministry is looking to save Rs 15,000 crore (Rs 150 billion) on oil subsidy.

Last month, the petroleum ministry had warned the department of disinvestment that the move might garner a lower of around Rs 5,300 crore (Rs 53 billion). The department had already fixed five merchant bankers -- HSBC, UBS Securities, SBI Capital, J M Financial and Citibank -- to manage the stake sale process.

The company has a current market capitalisation of Rs 47,527 crore (Rs 475.27 billion). “The stocks of IOC are at a low now, which raises question on timing by the government.

"May be the government wanted to give some confidence to investors,” said Debashish Mishra, senior director of Deloitte in India.

The shares have fallen from a 2010 high of Rs 425, when the stake sale was announced, and also from a February 2013 level of Rs 375.

BS Reporter in New Delhi
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