No disinvestment in Q1 of FY16, DoD to meet key ministries today

Concerned over the fact that not a single disinvestment activity has taken place in the first quarter of the current fiscal, the Department of Disinvestment (DoD) has on July 2 called a meeting of all key ministries, to discuss the future roadmap of stake sale in several blue chip State-owned entities in FY16, highly placed sources told The Pioneer.

Saddled with an ambitious target of raking in `41,000 crore through stake sales in State-owned companies during the current financial year, the Government has not been able to kick start even a single disinvestment proposal during the first quarter of 2015-16, owing to several reasons like the Centre’s own indecisiveness on subsidy sharing mechanism with ONGC and Oil India ltd (OIl), as well as the not so favourable global market conditions, and falling international crude prices.

In this context, the July 2 meeting between DoD and key ministries holds significance as an under pressure Government may announce stake sales in a couple of heavy weight companies, sources added.

The Government has a long list of heavy weight public sector companies like ONGC, NMDC, BHEl, Nalco and Power Finance Corporation (PFC) among others, in which it plans to sell stake during FY16. Not only this, it has to raise another `28,500 crore through strategic disinvestment. This takes the total disinvestment target for the current fiscal to `69,500 crore.

As a case in point, stake sales in Maharatna PSUs like ONGC and NMDC, put together, are expected to garner `18,000 for the Government, which will almost meet the 50 per cent of the `41,000 crore disinvestment target of FY16 (through stake sale in public sector companies). While there has hardly been any movement in case of NMDC’s stake sale, in case of ONGC, the Government’s lack of decision making in terms of how much of its subsidy burden will the upstream company bear for the current fiscal, has stalled the process

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In fact, as far as ONGC is concerned, the Government had started fervent preparations for its stake sale. In November last year, road shows for its 5 per cent stake sale in the Maharatna upstream company were held in the US, UK as well as in Singapore and Hong Kong. However the response from merchant bankers was far from enthusiastic as their main concern was about the subsidy sharing formula between ONGC and the Government.

Though it has been more than six months and even the first quarter of the current financial year has gone by, the Petroleum Ministry is still awaiting a response from the Finance Ministry on finalising a long term subsidy sharing arrangement. Till a decision is taken on how much subsidy burden will be borne by ONGC, the under-recoveries are being currently shared on the basis of a temporary arrangement arrived at by the Finance Ministry in February 2015.

According to this temporary arrangement, no subsidy burden is to be borne by ONGC if the global crude price are less than or equal to $60 a barrel (where they stand at present, thus easing the pressure on ONGC). However if the prices cross this range, then the subsidy amount will have to be shared on a certain percentage basis between the Government and the upstream company, depending on the quantum of price rise.

During the Budget session, Minister of State for Finance Jayant Sinha had said that based on the current market valuations, a 5 per cent stake sale in ONGC could yield Rs 13,217 crore while a 10 per cent stake sale each in NMDC and Nalco would fetch about Rs 5,038 crore and Rs 1,190 crore, respectively. He had further added that a 5 per cent stake sale in BHEl could yield as much as Rs 3,129 crore. 

With nine months left in the current fiscal, the Government will have to race against time to meet the ambitious disinvestment target.