What is Vedanta’s Anil Agarwal seeing in BPCL that Mukesh Ambani of Reliance is not?

P Manoj Mumbai | Updated on November 18, 2020

Anil Agarwal, founder of Vedanta Resources Plc   -  Bloomberg

Anil Agarwal, the billionaire owner of resources giant Vedanta Ltd, has just bailed out the Narendra Modi government from the biggest yet privatisation exercise undertaken in independent India turning a flop by filing an initial bid for the strategic disinvestment of oil refining and marketing firm, Bharat Petroleum Corporation Ltd (BPCL).

Only Vedanta has come forward to disclose that it has put in an expression of interest for BPCL, while the government remained tight-lipped about the number and names of bidders, except to say that it has received “multiple expressions of interest” when the deadline closed on Monday.

While global oil and gas behemoths, including home-grown Reliance Industries, have shied away from bidding – partly because of the current oil market scenario and the uncertain future for oil in the face of global climate change goals and attendant push towards renewables – Agarwal seems to be taking a different bet on the oil play.

Remember, it is the same Agarwal who bought Bharat Aluminium Co Ltd (BALCO) and Hindustan Zinc Ltd under the privatisation programme of the erstwhile NDA government, led by AB Vajpayee at the turn of the century.

Cairn Oil & Gas, which Vedanta acquired in 2011 from Britain’s Cairn Energy, is the largest private sector producer of crude oil in India, currently producing from assets in Rajasthan, Andhra Pradesh and Gujarat. The Mangala, Bhagyam and Aishwariya fields – the three major discoveries in the Rajasthan block – cumulatively have hydrocarbons reserves of approximately 2.2 billion barrels of oil equivalent.

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Cairn vision

Cairn contributed about 24 per cent to India’s domestic crude oil production in financial year 2019-20, and has a vision to produce 50 per cent of India’s oil and gas, according to its website.

Cairn has interest in 58 oil blocks in India, including the 41 blocks under the Open Acreage Licensing Policy (OALP) Round I auction, 5 blocks each under Round II and Round III, and two awarded under the Discovered Small Fields (DSF) Round-II in the Andhra Pradesh, Assam, Tamil Nadu, Tripura, Rajasthan, Maharashtra, and Gujarat. With the addition of these new blocks, Cairn’s portfolio now adds up to about 65,000 square kms, paving way for the next wave of hydrocarbon explorations in the country, it said.

If it succeeds in acquiring BPCL, it would be a forward integration for Vedanta, helping it use some of the oil produced locally for its own refinery as well as to sell within the country.

BPCL’s stature as India’s third biggest oil refiner and second-largest fuel retailerwould thus be a nice fit for Vedanta.

On the other hand, Mukesh Ambani has cited climate change concerns to transform his energy business into a new energy company by 2035, offering enough indications on where he stands on oil.

Ambani, according to oil industry sources, could be averse to expanding refining capacity on top of the 74 million tonnes (mt) refining and petrochemicals complex his firm already runs at Jamnagar in Gujarat.

Industry sources also attribute Reliance’s absence from the BPCL privatisation process to its potential interest only in the marketing network of the ‘maharatna’ oil company, a scenario that is unlikely to happen, given that the government is selling the company as a whole. Reliance Industries runs retail fuel stations through a joint venture with British oil and gas giant BP.

Published on November 18, 2020

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