Oil sector disinvestment through restructuring

By Sushma Ramachandran

NEW DELHI, MARCH 22. In a bid to meet the target of Rs. 2,500 crore revenue receipts from disinvestment in the current fiscal, the Government has managed to mobilise Rs. 1,320 crores from the restructuring of stand-alone oil refineries. The revenue is being raised through selling the Government's stakes in these refineries to other public sector oil companies such as Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Limited (BPCL).

Under the restructuring programme, IOC buys out the government holding in Chennai Petroleum Corporation Ltd. (CPCL) and Bongaigaon Refinery and Petrochemical Ltd. (BRPL) while BPCL buys out the Government stake in Kochi Refineries Ltd. (KRL) and IBP's stake in Numaligarh Refinery Ltd. (NRL). These smaller companies will now become subsidiaries of IOC and BPCL.

The Government decision to restructure the stand-alone refineries was taken quite some time ago but the actual implementation in terms of share valuation and purchase of equity was carried out only this month.

This will ensure that the receipts are shown in the budget estimates for 2000-01 rather than next year and will bring the revenues for the year much nearer to the target of Rs. 2,500 crores for disinvestment. Along with the Rs. 550 crores from sale of Balco to Sterlite Industries, the total receipts on account of disinvestment will now be Rs. 1,870 crores.

The practice of using such cross-holdings in the public sector to boost disinvestment receipts was initiated in 1999 when the two giant oil companies, IOC and the Oil and Natural Gas Corporation (ONGC), purchased equity stake in each other, mobilising around Rs. 4,200 crores.

In the present instance, the restructuring programme for the stand-alone refineries has been welcomed as it will ensure that these smaller units can face the competition in the deregulated environment in the coming years.

But the decision to speed up asset valuation and carry out the acquisitions by public sector companies in March, indicates the Government is merely trying to meet financial targets and has not been able to implement the privatisation of the public sector entities that have already been cleared for disinvestment.

The desired funds may be raised but whether this can be described as disinvestment is a moot point.

As far as the restructuring is concerned, the Government has announced that an asset based valuation of the refineries was considered for arriving at the fair value of shares.

Accordingly, the Government has decided to sell its shareholding in CPCL and KRL at Rs. 65.92 and Rs. 86.85 per share respectively. In the case of BRPL, the price has been fixed at the face value of Rs. 10 per share in view of the locational difficulties and massive investment needed to meet environmental standards. NRL equity is also being sold at the face value of Rs. 10 per share.

The total proceeds to the Government are estimated at around Rs. 1,320 crores. The proceeds from sale of 19 per cent equity held by IBP in NRL to BPCL are estimated at Rs. 172 crores and will accrue to IBP. The ten per cent sale to OIL of Rs. 91 crores will accrue to NRL.

An official release says the Government shareholding was 52.48 per cent in CPCL, 55.08 per cent in KRL and 74.46 per cent in BRPL. NRL does not have the Central Government shareholding but BPCL holds 32 per cent, IBP has 19 per cent, the Oil Industry Development Board (OIDB) has 10 per cent, Assam Government 10 per cent and OIL will be allocated 10 per cent.

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