Finance Ministry Bows To Oil Ministry Pressure, Backs Down On IOC Stake Sale

The Oil ministry has had the last word on the contentious issue of Indian Oil’s 10% stake sale, as the EGoM (Empowered Group of Ministers) headed by Finance Minister P Chidambaram has deferred the decision of divestment in the Maharatana oil company on Thursday.

Veerappa Moily, Minister of Petroleum and Natural Gas, had been continuously opposing the stake sale owing to bad valuations and non-conducive market conditions, while the Finance Ministry was aggressively pushing for the OFS stating that market conditions are not that bad and that the government desperately needs funds to finance the rising fiscal deficit.

Sources say that though IOC's stake sale has been deferred for now, the Finance Ministry may take another shot at convincing the Oil Ministry on the matter.

In its current issue, DSIJ has talked about the difference of opinion between the Finance Ministry and the Oil Minister. IOC CMD, Shri R S Butola maintained that this is not the right time for the OFS and the Oil ministry shares his view. However, a Department of Disinvestment official snubbed Butola’s claim and said that the stake sale will surely happen. It seems that Moily has won this battle of nerves, or this round at the very least.

Despite the fact that preparations for the IOC OFS were happening in full throttle, the Finance Ministry has bowed to the pressure and is focusing on other sources of revenue to complete its divestment target of Rs 40000 crore (of which just over Rs 2900 crore had been raised so far). IOC's stake sale would have given Rs 4500 crore at the current prices, which now has to be arranged from some other source.

The Finance Ministry is now focusing on the residual stake sale of Hindustan Zinc (HZL) and Balco and also from Suuti (Specified undertaking of UTI) stake that holds stocks of Axis Bank (20.72%), ITC (11.32%) and L&T (8.2%). The Cabinet has also paved the way for this stake sale by deferring its earlier plans to make an asset management company out of Sutti. By doing this, the Cabinet has facilitated the government to sell the shares of companies held by Suuti straightaway in the market. To somehow achieve its disinvestment target, the Finance Ministry had proposed to defer the earlier Cabinet decision over Suuti and had also requested the Mining and Law ministries to settle their differences over the residual stake sale of HZL and Balco. “It was on the proposal of the Finance Ministry that the Cabinet given its nod over Suuti and the problems related with HZL and Balco have also been solved,” a Finance Ministry official told DSIJ.

Considering this, we have seen the offloading of government stake from Suuti companies, and Axis Bank's stake could be the first one to be offloaded. The government is looking to generate Rs 14000 crore from HZL and Balco stake, while more money can be raised via Suuti companies. The total value of the holdings of Suuti is more than Rs 45000 crore at the current market price.

The EGoM will meet soon again to take a call on the Coal India issue or special dividends from Coal India if the problem regarding its OFS persists. At that time, the matter of IOC's OFS may come up discussion again, as the Finance Ministry is not in a mood to let this matter go. Certainly, the tussle is becoming more interesting with each passing day.