Oil Secretary, Vivek Rae says the company that has bought a sister company‘s stocks is free to sell it in the open market once the stock prices rise.
Defending the Government’s decision to make cash-rich public sector units (PSUs) buy stake in each other, thereby reining in the government’s fiscal deficit, Vivek Rae, Oil Secretary says the move is perfectly fine.
Rae says the company that has bought a sister company’s stocks is free to sell it in the open market once the stock prices rise.
Also read: PSU heads meet FM to discuss dividend payouts, capex plans
“I expect that some of the uncertainties that have been surrounding the IOC stock would get cleared in the next few months. Once those are cleared then the stock price will certainly move up, “ he says while suggesting that ONGC can cash-in on IOC’s better stock price later in the year.
Below is the edited transcript of Rae’s interview to CNBC-TV18.
Q: If you could confirm what is happening with Indian Oil Corporation (IOC). Would Oil and Natural Gas Corporation (ONGC) and Oil India be told to buy the 10 percent stake now that the divestment is not going through?
A: The matter is under consideration and we expect to take a decision this week.
Q: A lot of people would say that it would be a bit of a waste of resources for ONGC and Oil India if they have to spend their cash not for meaningful acquisitions and exploration but to actually go out and bail out the government in terms of meeting the fiscal deficit?
A: Not necessarily, because they will be free to sell the shares of IOC in case they acquire the shares. As we go into the year, maybe mid-year or later this year, they can get the money back if the share is doing well.
Q: But that is dependent on the stock price of IOC. At this point in time, the whole objection of the oil ministry in not selling IOC to open market is the price of IOC.
A: That is true and that is why we are not selling it in the open market. However, if our other sister companies buy then they can sell it in the open market at a later stage.
Q: Can you just confirm to us the notification of the new gas price as well?
A: That has been issued last week and it is in public domain. So, that is available for everybody to see. It will be applicable from April 01, 2014.
Q: Will there be any commensurate hike in urea prices as well, because that has been the key issue for the fertiliser sector as to the amount of the subsidy burden going higher?
A: That is something on which the department of fertiliser has to take a view. This is beyond the scope of the ministry of petroleum.
Q: Who will be asked to bear that extra subsidy burden?
A: Either the urea prices will be increased or it will be budgeted under the subsidy burden. There is no third possibility.
Q: The Oil Minister also said that the government is considering or rather the government is now increasing the quota of the subsidised LPG cylinders as well to 12 per household. Do you see that go through and what would this or rather what impact would this have on the under recoveries?
A: The present cap of nine subsidised cylinders or connections for the year caters for about 90 percent of the total LPG consumers in the country. Therefore, there is a limited case for increasing it further. However, finally what decision is taken by the government at the highest level is something that I cannot anticipate.
Q: There is some debate on what would be the eventual gas price from the April 1, 2014. There are a couple of reports which would say USD 8 based on the formula; some reports are saying it would be USD 9. From your internal calculations if you could give us a number in terms of what is the kind of gas price we are looking it from April 1?
A: We have to look at the data from January to December 2013 to arrive at the gas price on April 1 because there is a lag of one quarter. The data up till December 2013 is still coming in, so, we don’t have full data.
As soon as data is available, maybe by this month or by next month, we will then do the calculations. So, by middle of March we hope to arrive at a reasonable indication what the price would be.
Right now, anything I’d say would be purely speculative. People are saying it will be about USD 8 from April 1 but that is speculative right now. We have to see what the actual prices have been in the various markets.
Q: Just one more word on this entire cross holdings issue. How viable do you think it is or how financially viable it is for the cross holdings of these companies? We have seen it happen in the past but these are companies that would rather use their money for capex, etc rather than push it into buying stakes of other PSUs.
A: That is a fair point, but nothing prevents them from cashing-in on the share value as they go into the year. I expect that some of the uncertainties that have been surrounding the IOC stock would get cleared in the next few months. Once those are cleared then the stock price will certainly move up.