Cabinet approves stake sale in Indian Oil, NTPC

The Cabinet Committee on Economic Affairs (CCEA), led by Prime Minister Narendra Modi, on Wednesday approved the disinvestment department’s plan to sell stakes in Indian Oil and NTPC as part of the Centre’s Rs 41,000-crore divestment target for public sector undertakings. At current share prices, a planned 10 per cent stake sale in oil marketing company Indian Oil could fetch Rs 8,120 crore, while a five per cent stake sale in power producer NTPC could get the exchequer Rs 5,689 crore.

The Centre had last divested part of its stake in Indian Oil in March last year and in NTPC in February 2013.

NTPC fell almost three per cent to close at Rs 138 a share on Wednesday on the BSE exchange. The Indian Oil scrip, trading at Rs 334.60 a share in the morning session, fell three per cent after the Cabinet approval to an intraday low of Rs 324.50 a share before recovering to close at Rs 334.45 on BSE.

 

According to the disinvestment department’s new strategy, it is building a pipeline of companies with all approvals in place beforehand. The companies will be sold when market conditions are favourable. This is in contrast with the earlier practice of seeking Cabinet and regulatory approvals in the first half of the year and selling stakes in the latter half.

In a post-Budget interview with Business Standard in March, Disinvestment Secretary Aradhana Johri had said the stake-sale pipeline being prepared was for stakes totalling Rs 30,000 crore. Sources said among the two companies for which Cabinet approvals were granted on Wednesday, NTPC might be sold first, perhaps in a month. Since global oil prices were low, officials said the disinvestment department would wait for a few months before selling the government’s stake in Indian Oil and Oil and Natural Gas Corporation (ONGC), also a part of this year’s road map.

Prospects of a stake sale in ONGC increased considerably when the Centre decided last month to scrap the subsidy-sharing mechanism with upstream companies for this year and bear the entire cost of subsidies for cooking gas and kerosene. The Centre’s fuel subsidy burden is expected to rise to Rs 40,000 crore from the Rs 30,000 crore budgeted for this year.

The Union government has so far sold stakes in only one company this year, Rural Electrification Corporation in April for Rs 1,600 crore. Some other names in which a five to 15 per cent stake could be sold include Coal India, NMDC, National Aluminium Company (Nalco), Dredging Corp, Bharat Heavy Electricals (BHEL), MMTC, Hindustan Copper, National Fertilizers and Indian Tourism Development Corp.

The department already has the Cabinet’s approval for sale of five per cent stake each in ONGC and BHEL and 10 per cent each in Nalco and NMDC.

Apart from targeting Rs 41,000 crore from minority stake sales in state-owned companies, Finance Minister Arun Jaitley has also budgeted for proceeds of Rs 28,500 crore from strategic sale in loss-making public sector enterprises this financial year, making the combined target of Rs 69,500 crore one of the most ambitious divestment targets ever.