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Saturday, May 26, 2007

Centre may divest 5% in OIL

The oil sector may see the first disinvestment under the UPA government. The ministry of finance has asked the petroleum ministry to incorporate 5% divestment of government equity in Oil India (OIL) along with the company’s 10% initial public offer (IPO).

Sources said the ministry of petroleum had forwarded the IPO proposal to the ministry of finance that suggested 5% disinvestment could piggyback with the raising of fresh equity through the IPO.

Such a model of disinvestment has been followed in the case of power sector public sector unit NTPC and will be followed for PowerGrid, National Hydroelectric Power Corporation (NHPC) and Rural Electrification Corporation.

Senior officials said, the petroleum ministry has not firmed up its view on the disinvestment proposal though about two years back the then petroleum minister Mani Shankar Aiyar had rejected the proposal. “The views may change and the way for OIL disinvestment may clear,” said an official.

OIL has 98.2% Union government holding with the remaining held by employees. Sources said a 15% offering in the IPO would reduce the government holding to about 84.4% that would still be quite substantial. OIL currently has a paid-up equity of Rs 214 crore with an authorised equity of Rs 500 crore.

The IPO proposal may now have to be reworked and may be piloted by the department of disinvestment since it may involve sale of government equity. The proceeds from 5% sale will go to the government’s National Investment Fund with 10% sale proceeds going to the company itself.

“The proceeds going to OIL would be utilised for expansion plans of the company, both within and outside the country,” said an official. Besides, listing of the company would lead to enhancement of its valuation and improve its chances of securing overseas upstream (oil exploration and production) contracts. “An unlisted company is not viewed very favourably overseas when it comes to award of contracts,” he said.

OIL is planning to invest Rs 15,000 crore in the next five years in exploration and production sector in India and abroad and another Rs 2,000 crore in refining. Funds raised from the IPO would also enhance the company’s ability to raise debt.

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