By R. Sasankan
The BPCL privatisation plan has stuttered from the start. In November
last year, the Union cabinet decided to put its 52.98 per cent stake in
downstream petroleum giant. But investor interest appears to have cooled
in the heat and dust of the severe global economic slowdown,
precipitating a situation where the selloff has virtually stalled. The
deadline for submission of the Expressions of Interest (EoI) has been
extended for the fourth time to November 16 from the earlier date of
September 30. On all previous occasions, the deadline was extended by
three months. This time for some inexplicable reason the extension has
been by two months and 16 days -- perhaps more in hope than conviction
that an economic recovery is round the corner and overseas investors
will work up their enthusiasm for BPCL's petroleum refinery and
retailing business.
Finance minister Nirmala Sitharaman is clearly in a hurry. BPCL
represents the cornerstone of the disinvestment programme and the
government is keen to flog the asset before March next year so that the
proceeds from the sale can come in and help diminish the surging fiscal
deficit which some estimates put at over 7 per cent of GDP this year.
The finance ministry oversees the disinvestment programme and a separate
wing, called the Department of Investment and Public Asset Management
(DIPAM), handles such assignments. In one sense, this is an inherent
flaw within the system. The Modi government is signalling its
desperation to close the BPCL deal quickly -- and that is never a good
idea to ensure proper price discovery for such a prized asset.
Petroleum is a specialised area where foreign investors haven’t entered
in a significant manner till now. So, the right policy would have been
to involve the petroleum ministry to work out the strategy. The decision
makers must be able to react swiftly to the fast-paced developments in
the petroleum industry and that calls for deep knowledge about the way
the industry works. But all things said, it is clear that a consultant
-- no matter how brilliant he may be -- cannot substitute a politician
with sound common sense.
This is not the first time that the government has mulled over proposals
to privatise BPCL and HPCL. The idea was first mooted at the policy
level by an energy expert within the government more than one and a half
decades ago. This plan was predicated on the belief that India should
open up its energy markets to full competition. He wanted foreign oil
majors to move in via BPCL and HPCL and help establish a fully
competitive upstream and downstream energy market. But political
considerations scuttled the plan at that time; sadly, we still do not
have the sagacity in our political leaders even today to consider such a
proposal even at this stage.
So, what was the sudden provocation for privatising BPCL now? It could
not have been without the total backing of Prime Minister Narendra Modi
who would not normally be bothered too much about the fiscal deficit
which ought to be handled at Ms Sitharaman’s level. While announcing the
government decision to privatise BPCL, the petroleum minister made it
abundantly clear that the government favoured the idea of handing over
the company to an international oil major so that competition could be
injected into India’s petroleum sector.
Official circles confirmed that the government had indicated for a
foreign oil major and was clearly leaning towards Aramco of Saudi
Arabia. But the winner will have to come through the normal process of
competitive bidding that would throw up an attractive price.
Geopolitical and diplomatic initiatives that brought India close to
Saudi Arabia and UAE played a crucial role in deepening India’s
preference for Aramco and that remains unchanged. Aramco’s investment
proposal for a mega refinery in the state of Maharashtra and its
officially announced interest to enter India’s petroleum market were
also part of this strategy. The Saudi crown prince Mohammad bin Salman
disclosed during his visit to India his country’s plan to invest close
to $ 100 billion in India over the next two years.
The pandemic has thrown the entire plan to disarray; Covid-19 has hit
Aramco and all other global oil giants hard. BPCL cannot escape the
crippling consequences. When the Covid situation has been tamed, the
government can consider restarting the process again. Till then, it
would be wise to defer the privatisation plan instead of mindlessly
extending the deadline.
A word of caution to finance minister Ms Sitharaman: in the contemporary
reality of global energy, it is highly unlikely that the government
will get a decent value for the assets that BPCL has on the ground.
Another reality is that no matter which party is in power in New Delhi,
India does not wish to establish an independently-regulated competitive
energy market. At the same time, no foreign player will want to come in
without necessary regulatory changes.
“If our market does not attract a foreign player even today, it is very
unlikely that he would pay a fair value. And if our market is seen as
attractive, then making necessary regulatory changes will be the key to
attracting foreign investment in the sector. The current market
structure and market reality is a dampener for any investor," said an
acknowledged energy expert.
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