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Eye on fuel subsidy cut,govt puts off OIL stake sale

The department of disinvestment is learnt to have kept a proposal for selling stake in OIL

Written by Surabhi | New Delhi | Published: July 2, 2012 12:18:31 am

In an indication that the government may finally be gearing up to plug oil subsidy,the department of disinvestment is learnt to have kept a proposal for selling stake in state-owned Oil India Ltd (OIL) in abeyance. This has largely been prompted by renewed expectation that deregulation of petroleum product prices could be fast-tracked.

Earlier this month,the government had announced OIL as one of the 15 state-owned firms marked for stake sales this fiscal. Any decision on the deregulation of petroleum products could have a positive impact on the realisation from the divestment issue. With Prime Minister Manmohan Singh taking charge of the finance ministry,decisions on reform measures hanging fire for long — such as plugging the petroleum subsidy — are expected to be taken up.

“Why should we not benefit from a move in this front (of deregulating oil prices)? So we are planning disinvestment in OIL only towards the end of the fiscal,” said a top finance ministry official. The list of firms lined up for divestment this fiscal,including OIL,was announced earlier this month,when Pranab Mukherjee was in charge of the finance ministry.

“We will sell about 5 per cent stake. It may be in tranches as under the new Sebi norms,auctions can take place every 14 days,” the official said.

The decision to defer the stake sale in the upstream petroleum company comes days after the Prime Minister held a series of meetings with finance ministry officials as well as close aides,including Planning Commission deputy chairman Montek Singh Ahluwalia and PM’s economic advisory council chairman C Rangarajan,to take stock of the economy.

The PM is keen to give a “healing touch to the economy” by addressing structural issues that have slowed down growth over the past few months.

Finance ministry sources indicated that a decision on fuel price is likely to be taken over the next one month. “It has to be done at the earliest,or else the subsidy bill could rise,” said another official.

Last week,a panel led by the finance ministry’s chief economic advisor Kaushik Basu suggested that domestic diesel prices should be aligned to global prices. It also called for fixed government support for every litre of diesel sold.

While petrol prices have already been freed up,a partial or full deregulation in prices of diesel,LPG and kerosene is necessary to cut down the Centre’s subsidy burden and contain the fiscal deficit. Budget 2012-13 has targeted a fiscal deficit of 5.1 per cent by bringing down the subsidy bill to 2 per cent of the GDP.

“Subsidies have been growing. While there are some like food subsidies,we cannot trifle with,there is scope for reducing subsidies on fuel and fertilisers,” Rangarajan had said on Friday.

The government currently holds 78.43 per cent stake in OIL. A 5 per cent disinvestment in OIL could fetch as much as Rs 2,000 crore to the government,which is hoping to earn Rs 30,000 crore from stake sales this fiscal. In recent roadshows in Gulf countries,the government also sounded out foreign investors on stake sales in PSUs including OIL.

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