Oil Minister Dharmendra Pradhan today cited the four-decade-old Nationalisation Act to justify exempting ONGC from making an open offer after acquiring the government's 51.11 percent stake in HPCL.
Oil and Natural Gas Corp (ONGC) acquired government's 51.11 percent stake in HPCL for Rs 36,915 crore but unlike similar deals, it did not make an open offer to buy an additional 26 percent stake from minority shareholders of HPCL.
"We are bound by the Nationalisation Act and character of HPCL could not have changed so no open offer was mandated," Pradhan told reporters here.
HPCL came into existence in 1974 when the government took over erstwhile Esso Standard and Lube India Ltd and nationalised it through the ESSO (Acquisition of Undertaking in India) Act passed by Parliament.
The Supreme Court had in 2003 cited this law and the Burma Shell (Acquisition of Undertaking in India) Act, 1976 and Caltex (Acquisition of Shares of Caltex Oil Refining India Ltd and all the Undertakings in India for Caltex India Ltd) Act, 1977 to rule that the government cannot privatise HPCL and Bharat Petroleum Corp Ltd (BPCL) without approaching the Parliament for changing the nationalisation act.
While Pradhan said Hindustan Petroleum Corp Ltd (HPCL) will continue to remain a central public sector enterprise (CPSE) by virtue of government holding majority stake in ONGC, he did not say as to how the character of HPCL would have changed if ONGC's shareholding in HPCL would have increased to 77 percent after the open offer.
Rules currently state that a subsidiary, in which a PSU holds more than 50 percent stake, is a state-owned firm.
Asked how the ONGC-HPCL deal was different from Indian Oil Corp (IOC) in 2002 taking over fuel retailer IBP Co Ltd in 2002, he said, "HPCL is governed by nationalisation act."
The government had reasoned exemption from open offer saying "the management complexion is not changing. So it is a related party transaction".
Way back in February 2002, state-owned IOC had acquired government's 33.58 percent stake in fuel retailer IBP Co Ltd for Rs 1,153.68 crore and had to make an open offer for additional shares.
As per Sebi's takeover code, if a company acquires more than 25 percent in another listed company, it has to make an open offer to minority shareholders to buy at least 26 percent more in the target firm.
Had similar rules applied to ONGC, it would have had to shell out an additional Rs 18,800 crore in offering the same Rs 473.97 per share to minority shareholders.
Officials said ONGC will not have to make an open offer to minority shareholders of HPCL as the government's holding is being transferred to another state-run firm and the ownership isn't really changing.
Pradhan said HPCL will continue to be a separately listed company even after ONGC acquisition.
Government is 51 percent owner of HPCL and 68 percent owner of ONGC.
The deal, which flows from Finance Minister Arun Jaitley's Budget announcement of creating an integrated oil company, will help ONGC spread its risks.
From being a mere oil and gas producer, it will also have downstream oil refining and fuel retailing business, Pradhan said.
HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC's portfolio, making it the third-largest refinery in the country after IOC and Reliance Industries.
ONGC already is a majority owner of MRPL, which has a 15- million tonne refinery.
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