BPCL divestment: Bidding by PE/Pension funds likely to unravel game plan of oil majors

P Manoj Mumbai | Updated on November 19, 2020

If PE and pension funds win the deal, it would help the government avoid accusations from political opponents of a “sell-out”.

Reports that some yet to be unidentified private equity and pension funds have filed initial bids for buying Bharat Petroleum Corporation Ltd (BPCL) from the government could unravel a game plan by some of the oil giants who have stayed away from the auction.



The presence of these money bags could provide a semblance of respectability and competitive spirit to the bidding process and augur well for the government in mopping up proceeds it is potentially dreaming of from the sale of the state-run oil firm.

The right side of the process ends there.


PE and pension funds, particularly the former typically have a have 3-5 year horizon before exiting their investments for a profit.

A deal structure that is not possible today would then be workable.

If and when BPCL is sold, it will likely court political controversy, a reason why many of the oil giants stayed away aside their perceptions on growth prospects and the global shift towards renewables.

Participation of PE and pension funds

Considering this, the participation of PE and pension funds is seen as a “tacit understanding” with the oil majors. If these funds win the deal for BPCL, it will help the government avoid accusations from political opponents of a “sell-out”.

But, more importantly, after the three year lock-in period is over, the private equity and pension funds who own BPCL would be free to sell the oil company to anyone - including the oil majors - they feel would give them the kind of returns expected from their investments.

A US-based energy analyst corroborated this by saying that European oil majors are “now generally shying away from downstream (refining) activities and pivoting more to new energy and low carbon areas”.


The Middle Eastern players are not keen now as they are facing tough times trying to keep their internal finances afloat. They could be interested in the next couple of years but for now are shying away from any major investments or commitments, particularly that require capital,” he stated.

While the government is keen to sell BPCL as a whole now, the new private equity and pension fund owners of BPCL, three years down the line, is free to look at a deal structure that could involve selling the refineries and marketing networks separately to suit the specific requirements of prospective buyers and get better returns.

The intervening period would afford oil majors more time to understand better where the oil industry is headed before taking a call.

All this would beg the question: Has a well-run ‘maharatna’ oil company become mere money garnering exercise without realising any of the development goals for BPCL which the government says the privatisation would fetch?

BPCL and the oil industry is at a turning point. The government’s actions should not break it.

Published on November 19, 2020

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