State-owned IOC, BPCL may buy 26% stake each in GAIL, pay Centre Rs 200 billion each

New Delhi: State-owned Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Limited (BPCL) may buy 26 percent stake each in gas utility GAIL India Limited, paying the government over Rs 20,000 crore each to become integrated energy firms.

Following Finance Minister Arun Jaitley's February 2017 Budget announcement of creating integrated oil majors, IOC and BPCL had submitted separate proposals to buy the government's 54.89 percent stake in India's biggest gas marketing and transportation firm, GAIL.

A top source said since the government is not looking at actual merger of oil companies but only transfer of its ownership to a cash rich PSU, the best option would be to split the 54.89 percent holding in GAIL equally between IOC and BPCL.

At Friday's closing price of Rs 440.85 a share for GAIL on BSE, the stake is worth close to Rs 41,000 crore.

Representational image. Reuters

Representational image. Reuters

In January this year, Oil and Natural Gas Corporation (ONGC) bought out government's 51.11 percent stake in refiner Hindustan Petroleum Corporation Limited (HPCL) for Rs 36,915 crore. But HPCL hasn't been merged with ONGC and continues to remain a separate listed company with the same board. After the buyout, HPCL has become a subsidiary of ONGC, which gets up to two seats on the company board.

The source said IOC and BPCL too can follow the same model and split the government's stake equally among themselves. GAIL will become their subsidiary and will continue to operate as a listed company with an independent board. IOC and BPCL would get to appoint one director each on GAIL board.

Like in case of ONGC's acquisition of HPCL, the government would get to encash its holding in GAIL yet retain control over the company through IOC and BPCL.

The source said the government has so far not taken any view on the proposals made by IOC and BPCL. How and to whom the stake would be sold will be decided after inter-ministerial consultations, he said adding that the option of splitting the stake equally among the two firms is one of the options that would be considered during such deliberations.

Jaitley in the 2017-18 Budget had unveiled government's plan to create integrated public sector oil majors "through consolidation, mergers and acquisitions" so as that the merged company has "capacity to bear higher risks, avail economies of scale, take higher investment decisions" and is "able to match the performance of international and domestic private companies".

Following this, ONGC expressed interest in taking over HPCL while IOC and BPCL said they keen on taking over GAIL to help add natural gas transportation and marketing business to their kitty.

The government took up ONGC's proposal first and the transaction was completed at January-end this year. IOC, the largest oil refiner and fuel marketing company in the country, wanted to either acquire another refiner to add to its capacity or a gas company like GAIL.

The firm feels it already has a fledging gas business in under-construction liquefied natural gas terminals, city gas distribution projects and gas marketing. And GAIL, the nation's biggest gas transporter and marketing company, would complement that.

BPCL, on the other hand, too has natural gas ambitions and wrote to the oil ministry saying GAIL was its number one choice for acquisition. It listed Oil India Limited, the nation's second largest exploration firm, as its number two choice.

The government holds 66.13 percent stake in OIL, which at current market price is worth about Rs 18,000 crore.

Incorporated in August 1984 by spinning off gas business of ONGC, GAIL (India) Limited owns and operates about 11,000-kilometres of natural gas pipelines in the country. It sells around 60 percent of natural gas in the country.

The source said the government has not taken any decision on the proposals sent by other PSUs.

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Updated Date: Mar 18, 2018 15:00:13 IST