By R. Sasankan

The confusion over the privatisation of Bharat Petroleum Corporation Ltd (BPCL) appears to have deepened with no certainty in sight over the proposed timelines, the participants who will be allowed to pop in their bids, and the efficacy of the price discovery mechanism.

The government’s decision to privatise BPCL late last year had sent a frisson of excitement through the petroleum industry as oil giants salivated at the prospect of grabbing control of a retailing network that would drive their ambitions in a realm where state-owned companies have exerted tremendous influence.

But then came the double-speak that has left everyone a little puzzled about how the government planned to regulate play as it opened up space in a tightly controlled arena. Petroleum minister Dharmendra Pradhan came out with a statement on November 21 which created the first flutter. “Public sector firms such as Indian Oil Corporation (IOC) may not be allowed to bid for buying government stake in Bharat Petroleum Corporation Ltd (BPCL) for which a buyer may have to shell out as much as ₹900 billion),” he said.

Sanjiv Singh, chairman of Indian Oil Corporation, was not looking to give up on his chances of grabbing a lucrative asset. On January 11, Singh said: “Indian Oil Corporation is keeping its option open on making an offer for competing public sector oil retailer and refiner Bharat Petroleum Corporation. The PSU will look at bidding for BPCL as and when the Centre puts it on the block,” he said.

But Singh’s flip flop on the issue came soon after. "The expression of interest (EoI) for BPCL stake sale hasn't been issued yet. We don't know the conditions. We have no information whether PSUs are allowed to bid or not. I cannot comment if IOC will bid or not unless we see the conditions set out in the EoI," he said on January 16.

Clearly, Singh had received a rap from the government for voicing a comment that contradicted Pradhan’s original statement. He must have been pulled up by the minister which could explain his somersault less than a week later. But the seemingly unintended dissent of the PSU chief reflects the confusion over the privatisation of BPCL.

When the cabinet’s decision to sell the 53.29 per cent government stake in BPCL was announced on November 21, no one expected it to encounter any meaningful resistance. In fact, it was perceived as an eminently sensible move aimed at injecting much-needed competition in the petroleum sector. The trade unions protested vociferously against the move to privatise BPCL, which was pretty much expected. However, finance minister Nirmala Seetharaman who has been desperate to put a lid on the Centre’s fiscal deficit which has blown past her budget forecast by over Rs 1000 billion at the end of November, went on to announce that the sale of the government stake in BPCL would be completed before the fiscal year closes out on March 31.

But it has become pretty obvious that the government will not be able to complete the selloff before that deadline. The road shows are over but there is still little talk about the likely bidders. Nobody knows how many oil majors turned up for the road shows overseas.

Inquiries with industry and political circles reveal that the privatisation of BPCL is not going to be all that easy. Both Prime Minister Modi and petroleum minister Dharmendra Pradhan have been trying to woo foreign capital into a sector from countries that have for long shied away from investing in India. The success of the BPCL privatisation will depend crucially on how the Middle East oil majors respond to the government’s overtures. Many of them have reacted positively to emerging opportunities in India, which is evident from the manner in which they have committed investments to project proposals in the past two years.

The biggest investment commitment that the Modi government has received is from Saudi Aramco. Apart from the investment committed for the 60 million tonne annum mega refinery in the state of Maharashtra, the Saudi crown prince announced plans for a $ 100 billion investment in India over the next two years. Saudi Aramco is deeply interested in India’s retail petroleum sector. It made its intention clear when it signed memorandum of understanding for the mega refinery.

Did the finance minister go wrong in setting a deadline for closing the sale, driven by her anxiety to raise resources in order to reduce the fiscal deficit? The world economy is going through a difficult phase. Growth rates have slowed in the world economy and it hasn’t helped that India – which was once touted as the fastest-growing major economy in the world – has seen growth slump to 5 per cent, the slowest since 2008-09.

The privatisation of BPCL will help the Modi government to rake in around Rs 1000 billion. While large global oil corporations have the financial muscle to commit such kind of investment, not many would like to take such a huge risk at a time when the oil markets are subdued and there is a gradual shift in the energy mix towards renewables and the onset of electric mobility.

No oil major can succeed in India’s petroleum retailing sector without grabbing control of a large share in the marketing infrastructure which has been controlled by the three, state-owned oil marketing companies like IOC, BPCL and HPCL. It is against this background that the government decided to privatise BPCL which will give buyers ready access to about one-fourth of the fuel marketing infrastructure in the world's fastest-growing energy market in addition to 14 per cent of India's oil refining capacity.

There is no guarantee that Saudi Aramco or any other Middle East major will quote a price that the government expects. They will almost certainly bid if and when the government firms up its plans. A distress sale will be politically damaging for the government. The big problem is that the issue has increasingly become clouded by political overtones. A section within the RSS, from which the ruling BJP draws its sustenance, is opposed to the sale, more particularly to a company from the Islamic world. They cannot reconcile to the idea of word ‘Bharat’ being replaced by an ‘Islamic’ name across the country.

BPCL has 16,000 highly visible retail outlets in the country. Prime Minister Modi and petroleum minister Pradhan enjoy the confidence of the RSS. The deal for BPCL can succeed only if they succeed in quelling this dissent with help of the top RSS leadership.

It is almost clear that companies like RIL will not enter the fray. The most likely bidders from within could include the Adani group which may tie up with Total of France. Vedanta of Anil Aggarwal is keen but unlikely to offer the price that the government expects. Oil majors such as Exxon, Shell, BP and Rosneft are yet to evince interest in BPCL. But there is no doubt that India holds an attraction for all them.

The IOC chairman’s comments on the BPCL selloff should be viewed against this background. The government is really in a fix over privatisation of BPCL and IOC knows this better than anybody else. IOC is interested in BPCL and is willing to offer the price that the government has tentatively pencilled in.

For the Modi government, any setback to the BPCL privatisation could seriously undermine its economic reform process – a situation that it cannot countenance at this stage.