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• Post Independence: PSUs were created to build a self-reliant, stateled economy.
• 1951-1990: From 5 we reached 244 PSUs.
• 1970s, amid a nationalization drive, PSUs dominated the economic landscape.
• But later on, a bankrupt government was forced to rethink its strategy post liberalization.


• In 2005, Narendra Modi, the then Gujarat chief minister, had announced that the Gujarat State Petroleum Corporation (GSPC) KG basin block had 20 trillion cubic feet (tcf) gas.
• GSPC had struggled to start production from the block after investing as much as D20,000 crore.
• Later, it turns out that proven reserves were much less than that.
• This pushed GSPC into a tough financial corner, leaving it struggling to repay massive borrowings from PSU banks.

Puzzling Deal

• GSPC was merged with cash-rich ONGC.
• August 2017: ONGC officially acquired an 80% stake in GSPC’s KG basin gas block for D7,738 crore.
• The national auditor had slammed the GSPC for mismanagement of its investment in the oil block.
• This deal left analysts puzzled.


• Government is the owner of both public sector undertakings (PSUs) 1. ONGC: Oil and Natural Gas Corporation 2. HPCL: Hindustan Petroleum Corporation Ltd
• Deal: Govt. sold its 51% stake in HPCL to ONGC and transferred nearly D37,000 crore into the Centre’s kitty.
• With this, the divestment target for this year was more than met.
• Until recently ONGC was a largely debt-free.
• Problem: To facilitate these financial acrobatics however, ONGC, will be forced to borrow from the market to fund the proposed acquisition of HPCL.


• ONGC management has confirmed that after the government gave its nod for the merger, its board approved a 40% hike in the PSU’s borrowing limit – from D25,000 crore to D35,000 crore.
• Mr. Shashi Shanker, ONGC Chairman has said that the company will use a mix of cash and debt to finance the HPCL deal.


1. Cash: D12,000-13,000 crore first
2. Liquid assets: ONGC’s stakes in IOC and Gail India
3. If required then debt will be the last option
• Mr. Shanker: “This order can change, because we won’t sell the liquid assets in distress. Also, we have offers for over D50,000 crore debt at very competitive rates, both foreign currency and local.”


• For the HPCL deal, ONGC will have to rely on market borrowings of over D20,000 crore.
• To raise over D17,000 crore to finance the acquisition, it has already signed pacts with three domestic banks
Punjab National Bank: D10,000 crore
Bank of India: D4,460 crore
Axis Bank: D3,000 crore
• ONGC Videsh (OVL), a 100% subsidiary of ONGC.
• It has been using ONGC’s debt-free balance sheets to raise cheaper funds from the
international market to finance its acquisition of oil and gas assets abroad.
• Once ONGC becomes indebted, the costs of funds could rise for OVL,
hurting its ability to acquire hydrocarbon assets overseas to ensure
country’s energy security.
1. ONGC has acquired the status of the chief milch cow of the Modi
2. Whether it is to rescue GSPC or to fix the fiscal deficit of the Centre,
ONGC is the new Kamadhenu.
3. Mind you, in both cases, the Centre and Gujarat government should
have borrowed from the market to pay for the deficits in the balance
sheet of the Centre and GSPC.
But ONGC was used to hide these gaps.


• The market knows what ONGC is being subjected to.
• Crude prices have shot up 40% in the past six months. ONGC therefore has
a lot of cash in its kitty.
• This will now be transferred to the Centre which is selling 51% of HPCL.
• The stock market is not impressed because it knows ONGC has lost much credibility.
• And it isn’t just ONGC.
• Over the last year, the idea of a merger among IOC, Oil India and Gail
India is being tossed around so that the Centre can collect easy money by
selling its share in one company to another.


• 2017-18: Expenditure-Revenue gap widening.
• Goods and Service Tax collection is down
• Multiple reasons
• For the government, the deal would provide critical funds as it seeks to meet a fiscal deficit target of 3.2 percent of the GDP.
• All that this exercise ends up doing, though, is replacing the Centre’s borrowings with that of the PSUs.
• Crucially, it hobbles the finances of India’s PSUs.


• A back-of-the-envelope calculation shows that there are as many as 46 public sector companies.
• Ranging from the profit-making ONGC to loss-making Scooters India, and 29 state-sponsored banks and financial institutions that can be potential targets for disinvestment.
• The government has more than 51% stake in all these companies. Infact, the government holds as much as 90% stake or more in companies like Metals and Minerals Trading Corporation, Fertilizers and Chemicals Travancore, and Haryana Financial Corporation.
• All this is happening at a time when these PSUs are the only ones investing in the economy and are not hugely debt-ridden like the big groups in the private sector.


• The deal will allow ONGC to navigate periods of oil price downturns relatively smoothly, as refining margins typically expand during such periods.
• HPCL Chairman M. K. Surana: the company would likely be merged with ONGC’s subsidiary Mangalore Refinery and Petrochemicals Ltd  to achieve synergy benefits in the refining and petrochemicals sectors.
• The acquisition of HPCL by ONGC will pave the way for the country’s first vertically integrated oil major.
• Finance Minister Arun Jaitley, in his budget speech last year, had  announced the government’s plan to consolidate and integrate oil and gas Public Sector Undertakings (PSUs).


• NITI Aayog CEO Amitabh Kant: Government should spend money on improving social indicators like health, education, nutrition.
• Former bureaucrat Pradeep Baijal: PSUs are a necessity in areas where government has a natural monopoly; like railways, metro rail, utilities or sensitive areas like satellite or nuclear power.
• In a rapidly evolving world, there should be a model of constant review of the PSU portfolio – what to retain and what to divest.
• Experts recommend that disinve stment proceeds must be parked in a separate fund to be used in infrastructure investment. We should not be selling the family silver to pay the grocery bills (which is the case now)

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