Subsidy cut may blur govt’s selloff target

Indecision May Prove Costly For ONGC,IOC Issues

FINANCE Minister Pranab Mukherjee stares at the possibility of missing the disinvestment target this fiscal as the government wavers on petroleum product subsidy to achieve political goals while compromising on oil companies' financials.
    IndianOil, Bharat Petroleum and Hindustan Petroleum are expected to lose 23,333 crore in fiscal 2011 as the government rules out meeting the shortfall beyond a third of the total while forcing these companies to sell below market prices. Oil & Natural Gas Corp (ONGC) and Oil India would pay marketers a third of the losses in the three-way split.
    The Manmohan Singh government's delay in freeing up of diesel, cooking gas and kerosene prices, as recommended by the Kirit Parikh panel when crude oil prices were around $75 a barrel, is expected to cripple government and oil companies' finances as Brent crude races to $100 a barrel. ONGC and IOC are disinvestment candidates.
    Oil companies together were estimated to net the government more than 21,000 crore this fiscal by selling part stake, according to data from SMC Capital Global Securities.
    The government, which appeared to be on course for record disinvestment this fiscal after Coal India's 15,000-crore share sale, may be losing ground with the indecision on tackling rising crude prices. Of the planned 40,000-crore fund-raising from share sale in public sector companies, it has just crossed the half-way mark at 22,763 crore from SJVNL, EIL, Coal India, and MOIL, among others. Last fiscal, it had raised 21,308 crore, against an estimated 25,000 crore.
    "The government needs to take the ONGC and SAIL offers to the market if it is to meet its divestment target," said a banker involved in some of the government's share sales.
    But with various departments in the government haggling over fuel subsidies, oil companies seem to be out of favour with investors. Bharat Petroleum, IndianOil and Hindustan Petroleum have all underperformed the benchmark Sensex last month.
    "Our government is committed to the twin objectives of protecting the interest of the common man... as also to protect the financial health of the public sector oil marketing companies," Petroleum Minister Murli Deora said on Sunday.
SLIPPERY SLOPE
Oil cos together were estimated to net the govt over 21,000 crore this fiscal by selling part stake, which now looks doubtful with soaring crude prices
Also, with various departments haggling over subsidies, oil companies seem to be out of favour with investors
Bharat Petroleum, IndianOil and Hindustan Petroleum have all underperformed the Sensex last month ONGC, OIL may not be burdened
AN EMPOWERED group of ministers is meeting on December 30 to consider raising diesel and cooking gas prices.
    But explorers such as ONGC and Oil India may not be burdened beyond their 33% share of subsidies further, given that their investments could be affected.
    "I doubt they (upstream companies) can bear beyond 33%," Oil Secretary S Sundareshan had told this newspaper's TV channel, ET NOW, last week. But some believe that non-oil companies could still raise funds from the market as investors have benefited from previous listings. Steel maker SAIL is also a candidate to sell shares. "There is no dearth of demand for PSU issuances as long as it is appropriately priced," says A Murugappan, Executive Director at ICICI Securities. Some 62 initial share sales and eight follow-on offers about 71,114 crore this year.