Govt to divest 5% stake in ONGC in FY15 despite oil price slump, says Dharmendra Pradhan

The government will sell a stake in state-owned Oil and Natural Gas Corp (ONGC) in the current financial year even though falling global oil prices pose a challenge, Oil Minister Dharmendra Pradhan said on Wednesday.

The government was to sell 5 per cent of its stake in ONGC, the country's biggest oil and gas refiner, to raise Rs 17,000-18,000 crore. But the double impact of tumbling global oil prices and the rising subsidy burden has left the stocks of ONGC battered.

ONGC's share price has slipped from Rs 472 in June 2014 to Rs 352.90 (at 12:15 pm on Wednesday). At current price, the government will get about Rs 15,000 crore from the stake sale.

"We will factor in market conditions before disinvestment," Pradhan told reporters on the sidelines of the India Energy Congress in the national capital.

Pradhan said the divestment in ONGC was very much on the list for the ongoing 2014-15 financial year.

While slumping global oil prices make prospects of stake sale in ONGC grimmer, the government has lined-up four other state-run firms - Indian Oil Corporation (IOC), Bharat Heavy Electricals (BHEL), National Aluminium (Nalco), and Dredging Corporation (DCIL) - for disinvestment in FY15.

The government plans to sell a 10 per cent stake in IOC as well as Nalco, and 5 per cent stake each in BHEL and DCIL.

The government, Pradhan said, was reworking the subsidy sharing formula, adding, "The oil price pose a challenge (for ONGC)."

Upstream oil producers ONGC and Oil India made good nearly half of the revenue loss or under-recoveries that fuel retailers incurred on selling cooking fuel at government controlled rates.

This subsidy contribution, which was capped at US $56 per barrel in 2013, is by way of discount on crude oil they sold to the downstream firms.

But with global oil prices tumbling to five year low of less than US $50 per barrel, 2009, the continuation of the subsidy-sharing formula for remaining period of FY15 would mean that ONGC will not just have to sell crude oil to refiners like IOC for free but also pay another US $6 per barrel from its pocket.

In such a scenario, the government is considering exempting ONGC and OIL from payment of subsidy during the reminder of the financial year, sources said.

Subsidy burden on upstream oil companies has increased from Rs 32,000 crore or 30 per cent of the total under-recovery in 2008-09 to Rs 67,021 crore (48 per cent of the total under-recovery) in 2013-14.

In 2013-14, ONGC paid a record Rs 56,384 crore subsidy.

Under-recoveries during the current fiscal are pegged at around Rs 73,000 crore.

Of this, about Rs 51,000 crore has already been accounted for in first half where ONGC paid Rs 26,841 crore subsidy, OIL Rs 4,085 crore and GAIL Rs 1,000 crore.

The government provided a cash subsidy to cover the rest of it.

For the remainder of FY15, another Rs 21,000-22,000 crore of under-recoveries are estimated.