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It is a dejavu for the public sector oil companies. As the Government prepares to offload a 10 per cent stake in IndianOil Corp (IOC) to Oil and Natural Gas Corp (ONGC) and Oil India Ltd, the script is near identical to 1998-99. The only difference was that GAIL (India), and not Oil India, was part of the three-way crossholding deal. At that point in time, IOC and ONGC were also exploring the option of working together in refining, exploration, power, petrochemicals, etc. and the crossholding was expected to only strengthen this bond. Nothing of the kind eventually happened.

This time around, the 10 per cent equity sale in IOC will help the Government meet its target of more than INR 4,500 crore. The downside, though, is that the public does not get the opportunity to participate in an IOC float, which, according to an oil sector observer, “just does not seem to add up”.

The Petroleum Ministry has defended the decision saying the company’s market price (INR  207 on Monday’s closing) is too low at this point to hit the markets. In 1998-99, IOC and ONGC bought 10 per cent equity in each other and also subscribed to five per cent each in GAIL (which, in turn, picked up 2.5 per cent in ONGC). As a result, the Government realised nearly INR 6,000 crore, which fitted in well with its target for the year. Subsequently, each of these companies made good money by selling a small part of its stake in the market.

This is precisely what ONGC and Oil India will end up doing when they jointly buy 10 per cent in IOC. Once the share price increases substantially, they would much rather make a profitable exit. To that extent, nobody is going to complain that these were dud investments, but as the observer adds, the aam admi could have well had a similar opportunity to make some money. ONGC has, incidentally, been vocal lately in cautioning that it may completely deplete its cash reserves during the next two years due to the subsidy-sharing arrangement with its downstream counterparts (IOC, Bharat Petroleum Corpand Hindustan Petroleum Corp). Over the last two years, it has been forking out over INR 30,000 crore annually as part of the compensation package. In this backdrop, buying a stake in IOC will hardly help its cause unless it can make a killing by selling it quickly.

ONGC’s concern about the subsidy burden has not gone down too well with some of the refining companies, which are part of the bailing-out exercise each year. “It’s not as if we are begging for this money. We are compelled to sell fuels at huge subsidies and only get compensated in the process,” adds an executive.

During ONGC’s five per cent stake sale a couple of years ago, it was Life Insurance Corp of India that acted as the knight in shining armour and subscribed to a large part of the float. “By the end of the day, it’s only public sector companies that bail each other out,” says an industry observer.

Source-On Request