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Sunday, November 25, 2012

MINISTRY OBJECTS TO EIL, OIL SALE

Oilmin Throws a Spanner in Selloff Works


    The government's disinvestment programme, which has struggled to get off the ground, could face another setback as the oil ministry has expressed reservations about the proposed stake sale in Oil India and Engineers India after the small Hindustan Copper issue was largely bought by government-run institutions. The ministry of petroleum and natural gas has said these two companies should hit the market only after stake sale in at least two more companies through the offer for sale (OFS) route, according to a government official. "They (oil ministry) want the finance ministry to review the process of OFS, and if the next two issues are a success, only then they intend to allow divestment in Oil India and EIL," the official said. 
The finance ministry has received cabinet approval for a 10% stake sale in Oil India, a . 10,000-crore upstream oil company that has a market value of over . 27,000 crore at Friday's closing price. At this price, a 10% stake sale could have fetched nearly . 2,500 crore for the government, but Friday's Hindustan Copper issue may have made things difficult. 

The petroleum ministry's objection underscores the problems faced by 
Finance Minister P Chidambaram as he races against time to raise . 30,000 crore from disinvestment this fiscal. Administrative ministries have often objected to PSUs under their charge hitting the market even after the cabinet's approval for partial privatisation. Hind Copper Issue Raises Doubts 
Attempts to sell small stakes in SAIL and Nalco had to be put off because of disagreements over pricing. A string of successful stake sales will, the government hopes, help revive the markets, engendering a feel-good factor that will help the scam-hit Congress-led UPA government in its attempt to win a third term in the 2014 general elections. The government had kicked off its divestment programme on Friday with the auction of a 4% stake in Hindustan Copper. 
Though the issue was oversubscribed, media reports indicated that the biggest subscribers were largely state-owned institutions, including the country's largest insurer Life Insurance Corporation and public sector banks such as State Bank of India. 
Some individual investors did participate, but institutional participation by the private sector was meagre. Details of who subscribed to the issue are not in the public domain. 
Disinvestment Secretary MH Khan had said last week the plan was to launch the Oil India issue before December 20, but the official quoted earlier said the oil ministry was not so sure. "That is going to be very difficult as the Hindustan Copper issue was bailed out by state-run financial institutions. The oil ministry has already conveyed its apprehensions," he said. 
Independent experts agree, saying the 
government needs to rework its stake sale strategy. 
"They should decide who they are targetting. In case of OFS, they should make it a closed auction to institutions 
as retail investors hardly participate. And if they want it to sell to retail investors, they should offer as big as 20% discount," said Prithvi Haldea, chairman of Delhi-based research firm Prime Database. However, the finance ministry is determined to push ahead with disinvestment. "It will all depend on NMDC now. If there is some interest from investors, we will be able to just end the year with Oil India too," the finance ministry official said. The finance ministry, which recently got cabinet approval for a 9.5% stake sale in power utility firm National Thermal Power Corporation, is hopeful of hitting the . 30,000-crore target. 
"If we are able to go ahead with two blue-chip compa
nies such as NTPC, SAIL or even Nalco, the target will be well within our reach," the official said. The NTPC stake sale may fetch the government around . 13,000 crore, almost half of its intended target.



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