Though the imbroglio over the strategic sale of BPCL/HPCL is far from over, the mandarins within the government have come up with yet another proposal to meet the year's disinvestment targets. A booming stock market has inspired the bureaucrats in Delhi to suggest the sale of equity cross-holdings the three top notch energy companies, IOC, GAIL&ONGC, hold in each other via the book building route.
The three energy majors, following a government diktat, had collectively spent Rs.4,643 crores in January 1999, buying shares in each other. The move, widely criticised then, had helped shore up takings for a government facing revenue shortfall. Speculation was also rife that the government was in the process of a creating an integrated Indian Energy behemoth to take on the global energy giants, post deregulation. While the governments intent, if it has any, regarding the structure of the energy industry is still hot air the current sell-off is bound to generate another windfall for the government.
For starters, IOC currently holds a 9.6 per cent stake in ONGC and another 4.8 per cent in GAIL; ONGC holds another 9.1 per cent in IOC and 4.8 per cent in GAIL while GAIL has a 2.4 per cent stake in ONGC. Given the current Bull Run on the stocks the sale of these crossholdings is expected to fetch around Rs.174.5 billion from the market netting IOC nearly Rs.75 billion ,ONGC Rs.34.4 billion and GAIL Rs.17.6 billion with the government pocketing nearly Rs .13 billion by way of capital gains. Deny, as some may, the unexpected windfall is bound to reflect on the government's balance sheet, this time facing a mounting deficit.
Per say, the divesture of cross holdings makes perfect sense. The three energy giants have carved out aggressive growth strategies and are in the need for funds. Given the market run, their stocks touching an all time high and the original purpose of cross-holdings achieved; bailed out a government then facing revenue shortfall; it would be in the scheme of things to sell off these stakes to pursue greener pastures. What, however, is worrisome is the system and institution to decide the feasibility of exercising what is essentially a business option and the intent of such moves in a sector so crucial to the overall health of the economy.
Given the current state of the economy with forex reserves touching a high of $ 100 billion the proposed sale has not generated much heat. However, the concern this time round is the effect the proposed mop up operations will have on the liquidity in the market just at a time when domestic retail investor sentiments are picking up and the effect it will have on the markets appetite for other government offloading in companies like CMC and VSNL. More importantly, will the offloading provide the government the opportunity to privatize BPCL/HPCL through this back door option? Again, what happens to the proceeds from disinvestment, the windfall must be seen as one, which just shouldn't end up being the feed tiding over current government expenditure?
The ministry may well deny any direct linkage between the markets for the cross holdings and these other scrips but it brings us back to the basic question. When and how, if at all, does the government purpose to free the oil firms from the clutches of state control? The need for an integrated Petroleum Sector Regulator has been touched upon by the author in an earlier analysis (The Quandary of Oil Sector Reforms, ORF Strategic Trends, Issue 3, October 10, 2003) and the present context only reinforces it. Now, even the power ministry has gone on record asking for a Petroleum sector regulator. At the very least, a downstream regulator on the lines of the DGH (Directorate General of Hydrocarbons) is a pressing requirement if these blue chip public sector energy companies are to hold out in a deregulated environment.
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