ONGC to buy 51% stake in HPCL, government to exceed divestment target

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New Delhi, Jan 21: State-run ONGC will acquire the government’s 51.11 per cent equity share-holding in HPCL for Rs 36,915 crore, helping it exceed its divestment target for the current financial year.

The stake sale would also help the government boost state revenue and bridge the fiscal deficit at a time when shortfall in GST collections led to India’s fiscal deficit for the first eight months of 2017-18 reaching Rs 6.12 lakh crore or 112 per cent of the full year’s target.

“The Government of India has entered into an agreement with Oil and Natural Gas Corporation Ltd (ONGC) today (Saturday) for strategic sale of its 51.11 per cent equity share-holding in Hindustan Petroleum Corporation Ltd (HPCL) at a consideration of Rs 36,915 crore,” an official statement said.

Through the single share sale, the Centre would be able to meet half of its disinvestment target of Rs 72,500 crore through a single action taking the total receipts close to Rs 92,000 crore.

According to the Department of Investment and Public Asset Management data, the government had earned total receipts worth Rs 54,337.60 crore before this deal out of the total budgeted receipts of Rs 72,500 crore.

With quite a few other disinvestment proposals lined up in the coming months, the target may be revised to over Rs one lakh crore.

The government said that ONGC had proposed to acquire the Centre’s existing equity shareholding in HPCL in line with the budget announcement. 

Accordingly, the Union Cabinet, in its meeting held in July last year, gave “in-principle” approval to the proposal and decided to set up an alternative mechanism to decide on the price, timing and the terms and conditions of the strategic sale.

“The Alternative mechanism under the Chairmanship of Finance Minister (Arun Jaitley) in its meeting today (Saturday) approved the price bid of ONGC and the terms and conditions of the sale,” it said.

Through this acquisition, ONGC will become India’s first vertically integrated “oil major” company, having presence across the entire value chain.

According to the statement, the integrated entity will have advantage of having enhanced capacity to bear higher risks, take higher investment decisions and neutralising the impact of volatility of global crude oil prices.

“In this process, ONGC has acquired significant mid-stream and downstream capacity and will attain economies of scale at various levels of operations,” it said.

Through this economic consolidation, HPCL will join as a member of an integrated oil and gas major group. This will help it in further leveraging synergy at various levels of vertical value chains and look for economic consolidation within and outside the group.

HPCL will continue to be a Central Public Sector Enterprise (CPSE).

In fact, Prime Minister Narendra Modi had underlined the need of efficient management of government investments in CPSEs during the review in February 2016.

The Centre accordingly expanded the approach from disinvestment to investment and public asset management.

As part of investment management strategy, Government decided to explore possibilities of consolidation, mergers and acquisitions within CPSE space.