Oct 20, 2000|
Oil refineries - The current dilemma
The Government has recently adopted the recommendations of the Sengupta Committee. With the expected deregulation in the oil sector post 2002, there was a question mark on the sustainability of stand-alone refineries. Consequently, the Committee recommended the merging of stand-alone refineries with integrated oil companies.
Under the plan the Government will divest its stake in stand-alone refineries. It will divest from Chennai Petroleum Corporation Ltd. (CPCL) and Bongaigaon Refinery & Petrochemicals Ltd. (BRPL) in favour of Indian Oil Corporation (IOC). Bharat Petroleum Corporation Ltd. (BPCL) will acquire the Government stake in Kochi Refineries Ltd. (KRL) and Numaligarh Refineries Ltd. (NRL).
| No. of Shares (m)
| Government stake (m)
| BVPS (Rs)
| CMP** (Rs)
| Purchase cost (BVPS)
| Purchase cost (CMP)
* as per FY99
** Current market price
There is, however, some debate on the acquisition price of these companies resulting in a status quo. IOC and BPCL are of the opinion that the Government should sell its stake at the 15-day average market price. However, the Government is not to pleased with this suggestion, as currently the oil stocks are trading at poor valuations with the book value being significantly higher than the market price. Consequently, the government wants to sell its stake at book value.
The disinvestment in stand-alone refineries will serve two purposes it will ensure the sustainability of these companies post deregulation and help the Government meet disinvestment targets. The current dilemma could have been overcome if the government had adopted an open bidding system. This would not only help meet both the above criteria but also keep in mind the interest of the all so often forgotten small investor.
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