Govt plans to sell Oil India to IOC

Earlier this week, the Finance Ministry directed the Petroleum Ministry to get both firms ready for the acquisition. The Petroleum Ministry is in favour as it has been suggesting a restructuring of state-run oil firms to create two vertically-integrated heavyweights that could compete with global giants overseas.

Refining and marketing firm IOC, which recently branched out into exploration, has been on the lookout for buying an existing exploration firm to secure crude oil supplies for its refineries.

The transfer of entire government equity in OIL to another state-run company is also aimed at avoiding a confrontation with the Left, which is opposed to any share sale in the open market, while filling its coffers, said sources.

And it is this fear of a direct collision that prompted the Finance Ministry to rule out a market offloading of 5 per cent of government share in Oil & Natural Gas Corp, they added.

The proposal also fulfills Prime Minister Manmohan Singh’s views that any divestment should be aimed at strengthening the company. In March, Singh had criticised the sale of 10 per cent government shares in ONGC to the public, saying that the funds were being raised ‘‘just to finance the government’s deficit, not to strengthen ONGC.’’

IOC expects to raise the money for the buyout through sale of the 9.2 per cent shares it holds in ONGC back to ONGC. The share sale, which needs approval of the government, is expected to raise nearly Rs 10,000 crore for IOC.

In March, the NDA government sold 10 per cent equity in ONGC and GAIL (India), among others, to raise Rs 10,542 crore and Rs 1,627.36 crore to make up for the shortfall in disinvestment proceeds and meet the fiscal deficit target for 2003-04.

In 1998-1999, the government raised nearly Rs 5,000 crore from a share-swap plan that allowed IOC, ONGC & GAIL to buy government-held shares from each other. It raised Rs 1,320 crore again in 2000-01 from IOC and Bharat Petroleum which bought out the government stake in stand-alone refiners Kochi Refineries Ltd, Numaligarh Refineries Ltd, Chennai Petroleum Corp and Bongaigaon Refinery & Petrochemicals Ltd.