Will Modi Government Succeed Where Vajpayee Govt Badly Failed? Union Government Mulls 100 Per Cent Divestment In BPCL

The Union government is seriously exploring the option of privatising the country’s second-largest public sector refiner Bharat Petroleum Corp Ltd (BPCL) and is open to selling it to a global oil and gas major, CNBC-TV18 reported.

Quoting sources privy to the development, CNBC-TV18 reported that the government may go with NITI Aayog's view advocating 100 per cent divestment of BPCL under strategic divestment plan to maximise revenue realisation.

According to the report, global energy majors like Shell, Total, Aramco have shown interest in picking up government’s stakes in BPCL. As per the latest available shareholding data, the government owns 53.29 per cent stake in BPCL. Based on the current market capitalisation, the stake is valued anywhere between Rs 41,000 to Rs 42,000 crores.

Earlier this month, Business Standard reported that the government was considering selling its entire stake in BPCL to another government-owned entity, Indian Oil Corp. Ltd (IOC).

However CNBC-TV18 reported that the finance ministry has raised serious objections to the government’s stake sale to IOC, as it can create a monopoly in the oil marketing business.

In the event of IOC acquiring a majority stake in BPCL, it will create an energy behemoth that will control 66 per cent of the retail outlets in India and 42 per cent of the installed refining capacity in the country.

The finance ministry is said to have argued that such a deal would have invited the scrutiny of Competition Commission Of India (CCI).

Experts also argue that privatisation of BPCL, besides helping government meet a significant chunk of Rs 1.05 lakh crore rupee disinvestment target for the current financial year, will provide huge impetus to the efforts to depoliticise auto fuel pricing, ensuring IOC’s continued ability to pay hefty dividend to the government  and may improve market sentiment as it would be seen as big bang reforms.

It would also lead to more competition in the fuel retail sector as currently over 90 per cent of the fuel retail market is controlled by the three public sector refiners - Indian Oil, BPCL, and Hindustan Petroleum Corp Ltd.

If Modi government presses ahead with the proposal, it will not be the first time that an attempt is being made to sell Oil Marketing companies. In 2002, the Atal Behari Vajpayee government announced that it will sell its shares in BPCL through the public offer route while HPCL will be privatised through a strategic sale.

In 2003, Supreme Court however froze the sale of HPCL and BPCL by stating that the move had to be approved by the Parliament as the companies were created under a legislative act.

The SC ruling that all the proposals for disinvestment and privatisation of various companies created by an Act of Parliament would have to wait until Parliament grants its approval has proven to be a huge setback to disinvestment efforts till today.

Among the global players that are eyeing the fuel retail business in India are Saudi Aramco, BP plc, and Royal Dutch Shell.

In fact, Saudi Aramco is in talks with Reliance Industries Ltd to pick up a stake in the latter’s refining and petrochemicals business and is one of the partners in the west coast mega refinery project. These investments are part of Aramco’s effort to diversify into downstream oil and gas operations.

Similarly, Russia’s Rosneft has already invested in the 20-mtpa Vadinar refinery, which was earlier owned by Essar Oil Ltd.

In 2017-18, Oil and Natural Gas Corporation (ONGC) acquired the centre’s 51 per cent stake in Hindustan Petroleum Corporation (HPCL) for Rs 36,900 crore, and helped DIPAM garner a record Rs 1 lakh crore in divestment proceeds.

In 2018-19, Power Finance Corporation (PFC) acquired the Centre’s 52.63 per cent stake in Rural Electrification Corporation Limited (REC) for Rs 14,500 crore, which was 17 per cent of the year’s divestment proceeds of Rs 84,972 crore.