ONGC selloff drill amid differences

New Delhi, Oct. 2: The government is weighing the option of going ahead with a 5 per cent stake sale in state-owned ONGC in the current fiscal to meet its divestment target, despite differences between ministries.

While the finance ministry is pushing the proposal as the exploration company does not have to bear any subsidy burden now, the oil ministry feels the sale may not get the right valuation because of a slump in global crude prices.

At current prices, a 5 per cent sale is estimated to fetch the government more than Rs 11,000 crore. The cabinet has already approved the stake sale.

A selloff was planned nearly two years ago and roadshows were held in some cities overseas, but the proposal did not get an enthusiastic response from investors who were concerned about the huge subsidy borne by the company.

However, the exemption in subsidy because of the slump in global energy prices and decontrol of petrol and diesel has prompted the finance ministry to push for the divestment to meet the budgeted target.

Oil ministry officials feel the timing may not be right as global energy prices were subdued, affecting the revenues of the PSU.

The state-owned explorer reported a 21.14 per cent fall in net profit at Rs 4,233 crore for the first quarter of 2016-17 against Rs 5,368 crore in the year-ago period, primarily on account of lower crude oil prices.

During the quarter, the company's gross revenue also fell 21.41 per cent to Rs 17,784 crore from Rs 22,628 crore in the same quarter last year.

The net price realisation for crude oil during the quarter fell 21.97 per cent to $46.10 per barrel from $59.08 per barrel in the same quarter last year.

Analysts said the government should take into account the impact of Opec's decision to cut output later this year before taking a decision on the stake sale.

In a preliminary deal, the Organisation of the Petroleum Exporting Countries (Opec) will limit output to between 32.5 million barrels per day and 33 million barrels per day. The current output is estimated at 33.2 million barrels per day. For the first time since the global financial crisis eight years ago, the cartel has agreed to limit the output to reduce the glut that has depressed prices for more than two years and weakened the economies of oil-producing nations.

The Opec deal had spurred crude prices by about $2 per barrel to around $50 per barrel.

S&P Global Platts estimates prices to rise by $12 in 2017 if Opec cuts production by 700,000 barrels a day.

Should the stake sale go through, the government's shareholding in the upstream oil company would fall to 63.93 per cent from 68.93 per cent.

The government aims to collect Rs 56,500 crore through PSU divestment this fiscal, according to the Union budget for 2016-17.