Gail swap to swell Govt coffers

The first round of strategic alliances between Indian Oil and ONGC resulted from a 10 per cent equity swap between the two companies last month. The cross-holding between ONGC and Gail now sets the stage for synergy between the largest gas producer and the solitary gas transmission company.

It is not clear at this juncture what Indian Oil’s 5 per cent stake in GAIL will mean for the twocompanies. Union minister for petroleum and natural gas, VK Ramamurthy, told The Indian Express that “long-term plans for vertical integration between Gail and ONGC” would be worked out soon. ONGC and Indian Oil have each opted for a 5 per cent shareholding in the gas transmission company. Gail will buy 2.5 per cent of ONGC stock, at Rs 160 per share, which was the price at which Indian Oil has bought ONGC stock recently.

Gail shares have been priced at Rs 60 per share, or the price at which the stock was offered to institutional investors in January.

ONGC and Indian Oil will pay Rs 480 crore to the Centre for 8.4 crore Gail shares, equal to 10 per cent of the company’s paid-up capital of Rs 845 crore. The purchase of 2.5 per cent ONGC stock by Gail will transfer another Rs 427 crore to the national exchequer. The central kitty will receive altogether Rs 906 crore from the crossholdings between Gail, ONGC and Indianoil by the end of the month. The private placement of 3.5 per cent Gail equitywith financial institutions, banks and foreign institutional investors (FIIs) in January has earned the Centre Rs 180 crore from Gail stock. The Government’s earnings from disinvestment on account of Gail alone, therefore, comes close to Rs 1,200 crore this year.

The Centre’s equity stake in Gail also drops to 81.1% from 94.6 per cent in January.

A swap of 10 per cent equity between ONGC and Indian Oil has already inflated the government coffers by Rs 3,700 crore. The total earnings of the Centre from sale of stock in national oil companies will amount to roughly Rs 5,273 crore by the end of the fiscal. The transactions will be complete by March 31 this year, but formalities may continue in the weeks that will follow.

Indian Oil and ONGC are already in the process of drawing up a long-term plan for a strategic alliance. The alliance will help ONGC and IOC to work together in competing areas of operation like petrochemicals and power generation. The alliance between ONGC and Gail will give the gasproducer and supplier an edge in a competitive market.

Deregulation, said Ramamurthy, was the prime force between the strategic alliances between upstream and downstream oil companies.

Most transnationals eyeing the Indian market, Like Shell, Mobil and Exxon have integrated operations in exploration, refining and marketing.