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Panel for 26% stake in IOC, GAIL and ONGC - Views on News from Equitymaster
 
 
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  • Dec 28, 1999

    Panel for 26% stake in IOC, GAIL and ONGC

    The government should completely disinvest in all oil companies, barring Indian Oil Corporation (IOC), Gas Authority of India (GAIL) and Oil and Natural Gas Commission (ONGC) where the government should continue to hold 26%. This is the key recommendation of the sub-group of the Group on India Hydrocarbon Vision-2025. This should be completed during the Tenth plan (2002-2007).

    In a completely decontrolled scenario the government will have to send supplies of oil and gas to the far flung areas of the north-east. It is quite possible that the private sector may be reluctant to undertake this task. Hence the necessity of control over IOC and GAIL. The continued control over ONGC has been recommended since this upstream oil major is in control over large prime property in the country, some of which has strategic importance from the military viewpoint.

    ONGC is India’s premier oil exploration company and produced around 32 million tonnes of oil last year which works out to 45% of India’s refining needs and 90% of India’s crude oil production. IOC is India’s largest company with 45% of India’s refining capacity (i.e. the entire production of ONGC can be consumed by IOC itself) and GAIL controls most of the gas distribution business (sale volumes of 17 bn cubic metres in the country).

    The panels recommendations if implemented would completely change the face of the Indian oil and gas sector. Companies such as Bharat Petroleum, Hindustan Petroleum, Madras Refineries, Cochin Refineries, Indo Burma Petroleum would all be no longer public sector units (PSUs). Not only would the ownership patterns but the style of functioning, the patterns of investment and the marketing of petroleum products would itself undergo a sea change.

    It would also fill the coffers of the government enough to wipe out a substantial part of India’s fiscal deficit. More importantly, it will also reveal the extent of the public sector returns accruing from the oil sector.

    For investors, both strategic and ordinary this should be one of biggest investment opportunities.

     

     

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