CCEA Current Affairs

CCEA approves procedure and mechanism for Strategic Disinvestment

The Cabinet Committee on Economic Affairs (CCEA) chaired by the Prime Minister Narendra Modi has approved revision in the procedure and mechanism for strategic disinvestment.

In this regard, the proposal was forwarded by the Department of Investment and public Asset Management (DIPAM). The approval will help in speedy completion of strategic disinvestment transactions.

Revised mechanism for strategic disinvestment

Setting up an Alternative Mechanism (AM): It will decide on the matters relating to terms and conditions of the sale from the stage of inviting of Express of Interests (Eols) till inviting of financial bid. It will consist of the Finance Minister, Minister for Road Transport & Highways and Minister of Administrative Department.

Empowering the Core Group of Secretaries (CGD): It will enable CGD to take policy decisions with regard to procedural issues and consider deviations as necessary from time to time for effective implementation of decisions of CCEA. 

Strategic Disinvestment

In Strategic disinvestment, significant proportion of a Public Sector Unit’s (PSU) share and the management control goes to a private sector which is considered as strategic partner. It is different from the ordinary disinvestment in which management of PSU is retained with Government.

Department of Investment and public Asset Management (DIPAM)

DIPAM is the nodal agency of Union Finance Ministry mandated to advise the Union Government in the matters of financial restructuring of PSUs and also for attracting investment through capital markets. It will also deal with all matters relating to sale of Union Government’s equity in PSUs through private placement or offer for sale or any other mode in the erstwhile Central PSUs.

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CCEA approves selling 51% stake in HPCL to ONGC

 The Cabinet Committee on Economic Affairs (CCEA) has approved sale of government’s 51.11% stake along with management control in HPCL (Hindustan Petroleum) to ONGC. HPCL will continue as PSU after the acquisition.

HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC’s portfolio, making it the third-largest refiner in the country after Indian Oil Corporation (IOC) and Reliance Industries.

Prior to the merger, HPCL will take over Mangalore Refinery and Petrochemicals Ltd (MRPL) to bring all the refining assets of ONGC under one unit. ONGC currently owns 71.63% of MRPL while HPCL has 16.96% stake in it. MRPL will be the third refinery of HPCL, which already has units at Mumbai and Visakhapatnam

Background

There are only six major PSUs in the oil sector, ONGC and Oil India Ltd being the oil producers, IOC, HPCL and BPCL are in refinery business and GAIL is in midstream gas transportation business. The rest, such as ONGC Videsh, Numaligarh Refinery Ltd, Chennai Petroleum Corp (CPCL) and MRPL are subsidiaries of one of these six PSUs.

Union Finance Minister Arun Jaitley in his 2017-18 Budget had talked about creating an integrated oil behemoth. After that oil companies were asked to give their options. ONGC had evaluated options of acquiring either HPCL or BPCL, the two downstream oil refining and fuel marketing companies. It had found that acquisition of BPCL, country’s second-biggest fuel retailer is too expensive. On the other hand, HPCL’s acquisition easier as its market cap is of Rs 58,485.55 crore and buying government’s entire 51.11% stake would entail an outgo of Rs 29,900 crore.

Comment

Acquisition of HPCL by ONGC will help the government meet 40% of its disinvestment target of raising Rs 72,500 crore in the current fiscal. More deals in the oil sector including Indian Oil Corporation (IOC) buying out explorer Oil India Ltd or Bharat Petroleum Corp Ltd (BPCL) merges with GAIL may be in the offing.

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