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Decision on oil companies' divestment by August: Naik

Fakir Chand in Bangalore

The Union Cabinet is likely to clear the divestment in the three state-owned petroleum companies -- IOC, BPCL, and HPCL -- by August-end as the petroleum ministry has begun processing their proposals to offload their equity through IPO or strategic sales to private parties.

Disclosing this to the media in Bangalore on Tuesday, Union Petroleum and Natural Gas Minister Ram Naik categorically stated that the government holding in these flagship companies would not be reduced below 51 per cent.

"We have already received the divestment proposals from Bharat Petroleum Corporation Ltd and Indian Oil Company, while that of Hindustan Petroleum Corporation Ltd is due by next week."

After vetting the proposals in consultation with the divestments ministry, the recommendations will be sent to the Union Cabinet for clearance. The finance and law ministries are also being consulted.

"Though we have not yet decided on the time-frame, I think the entire process should be taking about two months from now," Naik affirmed.

In the absence of any budgetary support to these leading oil companies after the petroleum sector was deregulated and the administered price mechanism dismantled, the need to divest a substantial share of the government has become imperative so that all the three remain competitive and cost-effective.

"The three major oil companies are gearing up to face competition from the emerging private sector, including multinationals by expanding their production capacities and marketing facilities.

If they are to raise funds from the market at effective interest rates, they have to command value and credit-worthiness. To finance their ongoing and future expansion projects, the three oil majors will raise funds by off-loading their equity stakes at a price to be decided by the divestment ministry soon," Naik told rediff.com.

According to estimates worked out by the petroleum ministry in consultation with the Planning Commission, the three oil companies (IOC, BPCL, and HPCL) will be requiring a whopping Rs 170 billion during the 10th Five-year Plan period for meeting the ever-growing requirement of oil products in upstream and downstream sectors.

For instance, IOC is building a mega refinery at Paradip in Orissa with an investment of Rs 90 billion. Similarly, HPCL is constructing a refinery with a similar investment at Bhatinda in Punjab. BPCL is set to launch its new refinery at an estimated cost of Rs 60 billion at Bina in Madhya Pradesh.

"Obviously, they will be requiring huge funds through the equity route and debt instruments as they are now allowed to operate independently," Naik averred.

Naik, who is in Bangalore on a day's visit to participate in a seminar on Hydro Processing, organised by the Center for High Technology, also announced that 5kg LPG cylinders would be introduced from August 15, 2002 for the benefit of consumers in remote/hilly areas as well as low-income people in rural areas or urban slums.

"The security deposit will be Rs 350 for 5 kg cylinders as against Rs 700 for a normal cylinder of 14.2 kg, and the cost of refill cylinder will be about 40 per cent of the normal one," Naik declared.

Earlier, inaugurating the seminar on the processing of hydrocarbons, Naik mentioned that the government had taken a decision to blend 5 per cent ethanol in petrol throughout the country in phases. In the first phase, the program will cover eight states, namely, Andhra Pradesh, Gujarat, Haryana, Karnataka, Maharashtra, Punjab, Tamil Nadu and UP.

"Three pilot projects for use of 5 per cent ethanol in petrol, commissioned in Maharashtra and Uttar Pradesh have indicated that such usage be encouraged and the percentage of ethanol can be doubled to 10 per cent.

In this connection, the petroleum ministry has sanctioned Rs 70.76 million for further research and development to promote the increasing use of ethanol in auto fuels and make it mandatory across the country," Naik added.

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