BPCL strategic sale is a tight walk for government

Richa Mishra | Updated on November 26, 2019

The challenge is to ensure it’s not a distress sale

Finance Minister Nirmala Sitharaman has undertaken a tough task when she said that the government would like to see the strategic disinvestment of public sector Bharat Petroleum Corporation Ltd (BPCL) to be concluded this fiscal.

Just about four months to finish the entire process, which has to happen in two parts: Strategic disinvestment of the government’s shareholding of 53.29 per cent in BPCL — except BPCL’s equity shareholding of 61.65 per cent in Numaligarh Refinery Ltd (NRL) and management control thereof; and BPCL’s shareholding of 61.65 per cent in NRL along with transfer of management control to a central public sector enterprise operating in the oil and gas sector.

The change of guard at NRL may not be tough. Also doable, if the government puts its might behind, is the BPCL sale.

But the challenge will be to do it in a transparent manner so that tomorrow it does not come back to haunt those involved with the process.

Economy in stress

The government will also need to ensure that it does not seem like a desperate sale, given the stress that the economy is facing.

Depending on the competitive intensity during bidding, the proceeds the government is likely to garner for a full-stake sale could be in the range of ₹60,000-70,000 crore, according to industry sources.

Though the process is yet to start, the names of prospective bidders are already doing the rounds — Exxon, Saudi Aramco, Abu Dhabi National Oil Company or ADNOC, Shell, TOTAL, and, of course, the desi biggie Reliance Industries Ltd. A lot will depend on the criterion which the government puts out for the prospective bidders. Or will it be ‘tailored’ to accommodate just one?

Whether it be a local or foreign entity who emerges the winner, what the country will get in return matters here. In return for the stake will the country get an assured supply of crude oil or an assured market for India’s refined product exports? Or is the sale intended just to generate revenue for a cash-stressed economy?

FDI norms

On the policy front, the current FDI norms for the petroleum and natural gas sector allow 100 per cent automatic route for exploration and production and refining by private companies, but for public sector companies in refining, the norm is 49 per cent on automatic route without any divestment/dilution of domestic equity in the existing public sector units.

One could argue that the FDI policy may not pose a hindrance as it could be tweaked through an administrative note.

Joint venture

What about the case of a joint venture? For instance, Bharat Oman Refineries Ltd, which was formed as a joint venture between Bharat Petroleum Corporation Ltd and Oman Oil Company, runs Bina Refinery. So, JV may not be an issue if the partner does not have a problem.

A larger question can emerge if the bidders desire to buy one business of BPCL. Today, BPCL has overseas interests, refining and retail. Will the government go for a three-way split — overseas, refining and retailing — to get a better valuation?

The government needs money, but BPCL is not a distress sale, so a lot will be dependent on the criterion to decide the bidders, the bidding mechanism, and the buyer gets us in return. All this in next four months. A tight-rope walk indeed.

Published on November 26, 2019

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