Govt stakes in OGDCL, PPL: Offloading decision ratified by cabinet
ISLAMABAD: The federal cabinet has ratified CCoP's decision about offloading 7 per cent shares of OGDCL and 10 per cent stake in Pakistan Petroleum Limited (PPL), official sources told Business Recorder
The Cabinet Committee on Privatization (CCoP), in its meeting held on August 21, 2020 approved the proposals of Privatization Commission regarding offloading of 7 and 10 per cent stakes in OGGCL and PPL respectively.
The CCoP, in its meeting held on August 26, 2019 approved ten PSEs (with divestment of up to 10 per cent shares held by GoP) for inclusion in active privatization list and directed PC to publish expression of interest for hiring on FA, on case to case basis. Accordingly, PC after conducting due procurement process decided to appoint an FA for divestment of PPL shares on January 28, 2020. While the FA Services Agreement was being negotiated, capital market dynamics changed significantly owing to Covid-19 pandemic. In this regard, a consultative meeting with Secretary, Petroleum Division was held on March 5, 2020 under the chairmanship of Minister for Privatization wherein Petroleum Division was requested to submit its views to PC on the matter as per discussion held in the meeting. Accordingly, Petroleum Division submitted the following: "Petroleum Division is of the view that presently the share price trend in the capital market is not conducive for divestment of GOP's shares in OGDCL and PPL. Further, documented mode of divestment is time consuming and not likely for the transaction closure completion during the current financial year 2019-20. As such, Petroleum Division would recommend that divestment of GOP's share in OGDCL and PPL may be deferred for financial year 2020-21 depending upon the share price trend in the capital market. Accordingly, Privatization Commission may consider divestment of GOP's shares up to 10% and 18.39% from OGDCL and PPL to strategic investors during the financial year 2020-21 to attract Foreign Direct Investment and introduction of latest expertise in the E&P sector for the benefit of the country."
PC carried out a divestment of 5% shares of PPL in June 2014 at a share price of Rs.219 ($ 2.22/share). A closer look at the recent trend reflects volatility with a low of Rs.69 ($0.43/share) at end of March 2020 being traded around Rs 99 ($0 0.59 / share ) on August 10, 2020. One of the prime reasons for dip in the share price of E&P sector is the historically lowest price of crude oil in the international market. The matter including the Petroleum Division's suggestion discussed in the Privatization Board meeting held on July 22 and 29, 2020 and the PC Board, was approved and recommended for divestment of up to 10 per cent of GoP's shares in PPL followed by divestment up to 7 per cent of GoP's shares in OGDCL through public offering.
Petroleum Division submitted that current per share value of OGDCL is far below the earlier offered divestment price of Rs.216 in 2014 and added that "being the Administrative Division of OGDCL we feel it incumbent to request that the PC review the ongoing process and not resort to selling the GOP's 7% share in OGDCL at this stage". Petroleum Division proposed that: (i) given the current price of OGDCL 's share which is being traded at very low value, the ongoing divestment of GoP's 7% share in OGDCL may not be processed at this stage; and (ii) "PC may consider that the transaction is structured and instead of 7% GoP's shareholding in OGDCL, GoP 's 10% shares, may be offered to a Strategic Investor Company, preferably to a well versed Oil & Gas sector exploration and development company which would bring best industry practices and knowledge, state of the art exploration and production technique in the larger interest of OGDCL and E&P sector in Pakistan."
On August 21, 2020, Ministry of Privatization apprised that an OGDCL share posted the highest Rs.276 in December 2013 and post December 2014 has not exceeded Rs.200 mark . A closer look at the recent trend reflects a value of very high volatility with a low of Rs.77 at the end of quarter in March 2020 which was recently traded at around Rs. 115. The PC Board in its meeting held on July 29, 2020 considered the proposal submitted by the Petroleum Division to attract investment from international E&P companies in OGDCL by increasing the divestment of government-owned shares upto 10 per cent instead of earlier decision of upto to 7 per cent. The board considered that it would not be a viable option for the strategic E&P companies to acquire proposed percentage of shares in OGDCL, as still they would not be in a position to take strategic decisions.
The PC Board also observed that the shares of OGDCL are being traded at low price, as compared to the price prevailing at offerings in the past couple of years. The Board also gave due consideration to OGDCL's high dividend yield ratio, crude oil prices in international markets and a recent farming out decision by an international E&P company operating in Pakistan .The board after due deliberations did not endorse the Petroleum Division's proposal to increase the divestment of shares from the earlier approved decision of CCoP upto 7 per cent and decided that divestment of OGDCL shares should not exceed this limit.
The PC Board also directed the Transaction Committee to consider documented or undocumented mode for public offering at the time of hiring FA. Furthermore, it was recommended by the PC Board that divestment of OGDCL and PPL transactions may be planned with reasonable in-between time to make them successful.
The CCoP, in its meeting held on August 21, 2020 directed Ministry of Privatization to go ahead with the process of divestment of up to 07 % of GOP's shares in OGDCL, after the divestment of PPL's shares as directed/recommended by the PC Board.
The sources said, during discussion in the cabinet on September 1, 2020, the rationale for privatisation of House Building Finance Corporation (HBFC) was questioned as it was a profit making company. It was decided that the matter be deliberated further.
Copyright Business Recorder, 2020