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Bidding norms for IBP may be diluted -- Bank guarantee to be lowered

Balaji C. Mouli

NEW DELHI, July 20

THE Petroleum Ministry is actively considering a climb down on its stand for a Rs 2,000-crore bank guarantee for bidders seeking to acquire 33.9 per cent equity of the Government equity in IBP Ltd, according to Department of Disinvestment (DoD) sources.

This follows a meeting of the Inter-Ministerial Group here on Thursday. As part of their comments on the Cabinet note to finalise the bidding pre-conditions, while the DoD had sought nil bank guarantee in the bid tender, the Petroleum Ministry had mooted an amount of Rs 2,000 crore.

The bank guarantee is aimed at enforcing the bidder's commitment to an investment of Rs 2,000 crore in exploration and marketing, refining and pipelines or terminals.

The rationale for diluting the norms is that it will help introduce a greater element of competition for acquiring the Government's stake.

Besides, existing players who have sunk in Rs 2,000 crore in the sector like Indian Oil Corporation and Reliance Petroleum Ltd have a distinct advantage over the others in the fray given the interest cost in servicing the bank guarantee.

Another point made in favour of reduction in the bank guarantee amount was that the annual interest of Rs 50 crore which the bidders would have to fork out was far in excess of the profit of Rs 40 crore reported by IBP, according to Department of Disinve stment sources. This would discount the price bids and, in turn, the disinvestment proceeds.

In May last year, the Government had taken a decision to sell 33.9 per cent equity in IBP Ltd to a strategic partner. The selection of partner is proposed to be conducted through a global competitive bidding process.

IBP has a paid-up share capital of Rs 22.15 crore. At present, the Government has a 59.69 per cent holding; financial institutions (FIs) and banks 16.35 per cent; employees 0.7 per cent; and the public 23.37 per cent.