Govt plan may leave IOC with nothing

NEW DELHI: The governmentâ€™s proposal on IOC will lead to liquidation of Indiaâ€™s only Fortune 500 company. Although the governmentâ€™s announcement on Friday highlighted the decision to split the company and put the retail business of IOC on the block, selling off its refineries and other businesses like pipelines will virtually lead to a â€œtotal liquidationâ€� of the largest Indian company. IOC officials feel if this proposal is accepted and carried out in its current form, the company â€œwill cease to existâ€�. â€œWith the marketing division being put on the block and the refineries or other businesses too being sold off to HPCL, BPCL or a third strategic investor, what is left with IOC?â€� company officials asked. A senior government functionary said, â€œThe proposal to sell off IOC is like wanting to eat cake because roti is not available.â€� Petroleum ministry functionaries and IOC officials argue that if the idea was to rake in the resources to meet disinvestment targets, the government could have lowered its stake in IOC and sold shares in the market. The government has already declared it will retain 51% in IOC as a flagship company, whereas it is still holding over 81%. â€œThere is a case for lowering the government equity in the market and raising the required resources,â€� a source said. IOC shares have appreciated with the improvement in bottomlines and the growing profitability in the oil sector after the APM was dismantled. Speaking to ET, IOC CMD, MS Ramachandran, said, â€œThe world over, there is a trend to integrate oil companies and move vertically into upstream and downstream sectors. Splitting the retail business will leave the company completely handicapped.â€� IOC was a late entrant in the marketing sector, thus losing out on prime locations for retail outlets in the cities. IOCâ€™s major strength lies in the highway outlets which have increased after IBP was taken over. As of now, about 34% of the profits are contributed by the retail business, while about 40% come from the refinery business. Petroleum minister Ram Naik told ET, â€œAs of now, these are the only options which have been put forth for consideration. The petroleum minister and disinvestment minister have to work simultaneously on all three options and reach a decision.â€� Declining to comment on the governmentâ€™s proposal to â€œsplit IOCâ€�, Mr Naik maintained no such decision had been taken by the CCD and the matter will be discussed by the two ministries. Ministry officials said this would go against the global trend of merging and vertical integration, as has been seen in the cases of Exxon Mobil and Total Elf Fina. The inside story How did Mr Naik even agree to consider a proposal to break up and sell off in parts Indiaâ€™s biggest company and national champion, IOC, as an option, along with pursuing judicial review and legislative sanction for privatisation of HPCL and BPCL? The explanation apparently lies in the word â€˜swapâ€™ used in the CCD meeting, in which Mr Naik sat next to Mr Shourie, reports Soma Banerjee in New Delhi. The CCD decided to pursue three options: explore the possibility of a judicial remedy; see if legislation offers a way out; and an executive solution that entails swapping IOC for HPCL and BPCL. By the third option, Mr Shourie meant substituting HPCL and BPCL on the sell-off block with IOC. What Mr Naik understood, reportedly, was that a share swap among the three oil PSUs would be considered. In 1998, when Vijay Kelkar was finance secretary, the government had raised money under the disinvestment head by forcing the oil majors to buy each otherâ€™s shares from the government, calling the process a share swap among oil PSUs. Mr Naik thought the proposal under consideration was for the government to raise funds from the oil PSUs through a similar share swap. Reportedly, although he didnâ€™t see much point in such a move â€” it did not do anything to further the cause of transferring ownership to the private sector â€” he did not find anything seriously objectionable in the proposal either and went along with it.

Govt plan may leave IOC with nothing

The government's proposal on IOC will lead to liquidation of India's only Fortune 500 company.

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