Ministry Nod For Eil Selloff

The ministry for petroleum and natural gas has conveyed its concurrence with the Disinvestment Commission's proposal for divestment in Engineers India Ltd (EIL) to the Union finance ministry.

The finance ministry, which is the nodal agency for obtaining Cabinet approval for disinvestment in various public sector undertakings, is preparing a draft Cabinet note for the purpose.

The commission has recommended a mix of disinvestment modalities which would enable EIL to continue to function as a major consultancy company in the field of hydrocarbons, petrochemicals and fertilisers as also in the new emerging sectors of power and natural gas.

The commission has said that EIL may scan the market for suitable strategic partner who may be offered up to 30 per cent equity stake in the company alongwith appropriate role in the management.

 

Such a partner should be able to add to EIL's strengths in terms of project management particularly lumpsum turnkey (LSTK) capabilities, global acceptance and access to international funds, without, at the same time, eroding its strong domestic brand equity.

The commission has also suggested that EIL may also establish an employee stock option plan (ESOP) and assign 10 per cent equity towards this purpose. The available models of ESOP would need to be closely studied and modified to suit EIL's own HRD requirements, particularly the need for providing incentive and motivation to the middle and top level technical personnel.

It has said that 10 per cent of EIL's equity may be offered to public sector oil companies, as also to the Steel Authority of India Limited, the Gas Authority of India, and the National Thermal Power Corporation in view of EIL's expertise in providing services to these companies.

The commission has said that already six per cent of EIL's equity is with the public and this may be increased to 24 per cent through an offer to domestic investors, at an appropriate time, after the strategic partner is inducted.

"Through this process, the government may reduce its equity holding to 26 per cent and maintain it at that level with a view to ensuring that EIL retains its main character as an Indian consultancy company in strategic areas", the commission has said.

EIL is a profitable enterprise and has been a consistent performer with a healthy return on capital employed (ROCE).

The company has played a major role in providing engineering consultancy support to the growth of refinery anmd petrochemical industries in the country.

However, according to the petroleum ministry, the recent changes in the economy require a long-term business strategy that would enable it to build on its current business strengths and complement them through strategic partnership, with other capabilities to cover areas of weakness, so that it could benefit from emerging opportunities and combat the competition of global consultancy companies.

The ministry is confident that EIL has the potential to become a global consultancy firm through such partnerships.