The announcement appears to be a reaction to the logjam created by the mid-September Supreme Court verdict that directed the government to obtain Parliaments assent for privatization of oil majors Hindustan Petroleum Corp. and Bharat Petroleum Corp., as both were created by statute. Lack of numbers in Parliament to push for repeal or amendment of the statutes has effectively placed the issue in cold storage. Prospective Hindustan bidders Reliance, Saudi Aramco-Shell, Kuwait Petroleum and BP were conducting due diligence when matters ground to a halt, creating much embarrassment for the government.

Unions have voiced vehement opposition to the notion of privatizing IOC and have threatened a countrywide strike if any concrete step is taken. IOC Officers Association President E. Haque points out, Apart from its highest-ever dividend payout of Rupee 2,258 crore [U.S. $497.4 million], IOCs contribution to the national exchequer in the form of taxes and duties was Rs. 33,000 crore [U.S. $7.27 billion] last fiscal year, 14 percent of the governments total tax collection.

Bringing out the family silver is seen as an attempt by the government to underscore its commitment to oil sector privatization. However, it has once again highlighted the discord between the Disinvestment and
Petroleum ministries. IOC, incidentally, was not created by statute.

IOCs fundamentals are indeed impressive:

• Turnover last fiscal year: Rs. 119,848 crore (U.S. $26.4 billion).
• Profit: Rs. 6,115 crore (U.S. $1.35 billion), a 240 percent jump over the previous year.
• Dividend declared: 140 percent.
• Bonus shares issued: one for every two shares held.
• Petroleum products market share: 56 percent.
• Oil marketing share: 53 percent.
• Lube market share: 42 percent.

A deluge of responses heightened the confusion. Petroleum Minister Ram Naik, a known opponent of oil sector privatization through the strategic sale route, promptly contradicted Disinvestments Shourie and asserted that no firm decision to split IOC had been made. As an alternative to dividing the corporation, Naik proposed offloading 20 percent of the governments 82 percent stake to the public to meet the disinvestment target of Rs. 13,000 crore.

Pointing to the worldwide trend towards vertical integration of oil companies, IOCs Managing Director M.S. Ramchandran joined the fray stating that hiving off its profitable retail chain would leave the company completely handicapped. Flaunting IOCs considerable financial muscle, he made a counter-offer to buy the 34.1 percent Hindustan Petroleum stake originally on the block for a whopping Rs. 10,000 crore.

The media, otherwise an ardent disinvestment supporter, almost with one voice pooh-poohed the IOC dismemberment proposal and stressed that stand-alone refineries were not financially viable.

That IOC, the Gas Authority of India Ltd. and the Oil and Natural Gas Corp. would remain government corporations has long been stated policy. Ashok Singh, president of the Oil Sectors Officers Association, was quick to point out, We had all along cautioned that the government would not stop with Hindustan Petroleum and Bharat Petroleum, and that its eventual targets were IOC, the Gas Authority and the Oil and Natural Gas Corp. – and we now stand vindicated. Singh is amenable to any public issue that leaves 51 percent with the government.

With public opinion of all hues weighted against chipping away at Indias premier corporation, the government will have to figure out a dignified way out of this muddle.