06 Jun 2019

Three-way merger of power cos, GAIL split first up in PSU rejig

India has started work on restructuring state-owned companies and on the immediate agenda is the bifurcation of GAIL (India) into marketing and transportation units — one of them to be sold — and a three-way merger of power generation companies NTPC, SJVN and NHPC. 

“We are looking at various combinations,” said a finance ministry official aware of developments. 

Indian Oil Corporation, the state-owned refiner, had evinced interest in natural gas processing and distribution company GAIL last year, and may be a potential buyer, the official said. 

IOC is the second-biggest gas marketer in India, after GAIL. 

The government holds 52.64% in GAIL, which has a market capitalisation of Rs 80,844 crore. 

“In the past, the petroleum ministry had some reservations... we expect to iron out these issues this time,” the official said, adding that the government could raise about Rs 30,000 crore from a stake sale in such an exercise. 

In a similar transaction last fiscal, the government sold its entire stake in REC, formerly Rural Electrification Corporation, to state-run Power Finance Corporation for Rs 14,500 crore. Oil & Natural Gas Corporation, India’s biggest exploration company, bought the government’s entire stake in refiner Hindustan Petroleum Corporation for Rs 36,915 crore. 

The government has set a disinvestment target of Rs 90,000 crore for the current financial year. It raised Rs 84,972.16 crore in 2018-19 against a target of Rs 80,000 crore. 

The other plan being considered is the merger of NTPC, NHPC and SJVN. NTPC, the country’s largest power generator, may eventually becoming a holding company. The official said one option is for NHPC to buy out government stake in SJVN and at a later stage, become holding company for both utilities. The government’s 61.93% in SJVN is valued at about Rs 6,000 crore at current market price. It holds 73.33% in NHPC, which has a market capitalisation of Rs 25,597 crore. 

Another government official said an alternative is that NTPC buys out the Centre’s entire stake in SJVN and NHPC takes over North Eastern Electric Power Corporation, making it a strong portfolio of hydropower firms. 

“These are being discussed,” the second official said, adding that the proposals will be taken up by the new ministerial committee that will oversee mergers and stake sales once the panel is notified. 

Experts said the government should focus on strategic sales. 

“Rather than raid the cash reserves of CPSEs, the government should look to sell non-strategic companies to the private sector or opt for golden share and sell the rest,” said MP Shorawala, a former independent director with Container Corporation of India. 

Source: The Economic Times, 6th June 2019, Thursday

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