Policy
IOC May Acquire BPCL Refineries If Privatisation Works Out As Planned
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India Makes Progress In Diversifying Crude Import Sources
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Indian Oil PSUs Find Russia’s Vostok Oil Project Tantalizing
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India To Remain Invested In Vietnam’s Oil Sector
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Consistent Rise In Petrol Consumption May Create Problem For Refineries
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Regulation
Demand For LNG Depends More On Price Than Domestic Production
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First FSRU Becomes The Second, A Total Of Two Now
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India To Open Pumps To Supply Ethanol Blended Petrol?
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A Sensible Strategy To Promote Use of Natural Gas In North East
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Alternative Energy / Fuel
NTPC Renewable Energy Inks Pact To Sell Power From 150 Mw Solar Project
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New Projects
IOC To Use Drones To Check Fuel Thefts From Pipelines
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Brahmapuram, Nallalam Projects To Switch To LNG
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Mangala Field Celebrates 12 Years Of Prolific Production
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Market Watch
IOC Launches Branded Gasoline Fuels With Higher Octane Ratings
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Companies
Alphageo (India) Limited
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Wabag Secures Rs 840 Mn Order In Malaysia For Petronas Refinery
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Adani Green Energy Raises $ 750 Mn
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Press Release [FREE Access]
Petro Intelligence » BPCL Selloff Plan’s Success Hinges On Creation Of Effective Regulator

By R. Sasankan

The privatisation of Bharat Petroleum Corporation Ltd (BPCL) has not run into any major hurdle and the prospects are bright that the selloff will be completed by the middle of 2022. When the plan to privatise BPCL was first announced in October 2019, it was thought it might go through sooner. One other oil marketing company -- Hindustan Petroleum Corporation Ltd (HPCL) -- waits in the wings. It was also in the original list of companies that were marked down for privatisation. HPCL's situation has got a little complicated after state-owned Oil and Natural Gas Corporation (ONGC) took it over.

The privatisation of the two OMCs was recommended many years ago when Atal Behari Vajayee was the Prime Minister. The recommendation, which was kept a secret, had been made by Dr Surya P. Sethi, the then Principal Advisor (Energy) who had joined the government from Washington-based International Finance Corporation. Dr Sethi is a well-known energy expert who understands the ins and outs of the Indian petroleum industry.

When he first made the recommendation, he was driven by a desire to promote genuine competition in the downstream segment. Sadly, this hasn't happened even after the entry of private players like RIL and Essar (now Nayara). Competition was supposed to give the consumer choice in terms of price and quality -- which remains a distant dream.

When the Modi government floated the idea of privatising BPCL two years ago, the impression was that quite a few oil majors would scramble to grab the opportunity to enter India in a big way considering the fact that it was one of last attractive, fossil fuel-guzzling nations in the world.

Aramco of Saudi Arabia was extremely keen to enter the fray and its leadership even went on to articulate its intention to enter India’s retailing market. But all those plans unravelled very quickly after the outbreak of Covid-19 early last year. The Indian government had the option of postponing the BPCL selloff. But after several delays in the bidding process, it decided not to wait.

In normal circumstances, the ministers of petroleum and finance would shepherd the selloff process for an oil PSU. But in the case of BPCL, finance minister Nirmala Sitharam -- who controls the department of Investment and Public Asset Management (DIPAM) which oversees the selloff process -- has called the shots all along. This is one of principal reasons why the bidding process for BPCL was not stalled even after it failed to attract any interest from any of the oil majors in the world including Aramco.

The government managed to get three offers but none of them is from a foreign oil company. The investors who will battle it out include two foreign financial companies that manage large equity funds and a domestic mining player which has a substantial interest in upstream oil operations in the country.

This is not a situation that anyone had expected or is even comfortable with. There is a fear that the large financial funds will try to maximise their profits by shredding the acquired asset and selling it in parts. The energy sector pundits are pained by this development. This could also be one of the reasons why petroleum minister Dharmendra Pradhan is keeping a safe distance from the entire selling process. He does not want to be around to take the flak if the selloff gets mired in controversy.

The real value of BPCL lies in its retail network. Any move to strip that away and sell it to an independent operator of retail assets will not work in the Indian market. Such a situation calls for backward linkages unless the government allows free import of products which is unlikely.

BPCL controls 25 per cent of the Indian petroleum retailing market. “It would be sad to see this operating strategic asset pass into the hands of purely financial investors, operating through designated funds, whose only experience in the sector is filling up their cars at petrol pumps and paying their gas utility bills,” said a top energy expert.

He believes that such financial investors are not in the business of operating acquired assets; they are, typically, in the business of realizing value by buying and selling operating assets. The consequences could be detrimental for the Indian oil and gas sector.

According to market circles, the front runner for the government’s 52.98 per cent equity stake in BPCL is the New York-based Apollo Global, which has apparently given an assurance to the government that it has no plans to tinker with the company's structure for at least four years. It has backed up its talk with a very attractive offer price. But what will happen after the lapse of four years? Will the government stand like a mute spectator and watch BPCL being carved into bits? Moreover, what will be the political price that the ruling dispensation will have to pay? After all, BPCL is rated as the most efficient among the three PSU oil marketing companies.

It does not matter who buys BPCL or HPCL; it can be sold to whoever pays the highest price. I am not averse to foreign oil companies coming in, provided India regulates the downstream sector meaningfully. India has an ineffective downstream regulatory Act. Even worse, it has incompetent regulators. The government will have no role in the downstream oil sector if the regulation is proper. But if it wants to exert some influence in the sector, then it can keep Indian Oil Corporation provided it competes on a level field.

In my view, the government must concentrate on the upstream sector (ONGC and OIL) and the pipeline transportation, distribution and storage infrastructure . Above all, the government must control oil diplomacy and enter viable, transparent and beneficial long-term supply contracts for oil and gas. If you control the input costs and you have the transmission, distribution and storage assets and a well-regulated downstream sector, then you really should not worry about who runs the downstream sector.

Finally, I would like to leave my readers with something to chew on.

Currently, the government does not oversee the crude imports of private refiners. As long as these were meant for purely export-oriented refineries, it did not matter. But if private crude importers are allowed to refine and market the product in India, then their oil and gas purchase deals must be brought within regulatory purview. The electricity regulators, for example, do scrutinise coal imports.



To download the latest issue 'Volume 28 Issue 11 - September 10, 2021', click here
Petro Intelligence [FREE Access]
BPCL Selloff: Foreign Equity Players May Be Fronting For The Big Boys
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When Competition Comes A Cropper
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No Logic In Expanding Crude Storage Capacity
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India’s Business Ties With Saudi Arabia, UAE Call For A New Dimension
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Foreign Investment
Petronas To Expand Joint Venture With IndianOil
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Nayara Energy Ties Up Rs 40 Billion For Foray Into Petrochemical Biz
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Cairn Energy Proposes Capital Return Of US$ 700mn
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Overseas Investment
OVL, IOC Sign Pact With Russia’s Gazprom
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ONGC Videsh Relinquishes Israeli Oil Block
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Gas Scene
Sector-wise Consumption Of Natural Gas in July 2021
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Domestic Natural Gas Scene In July 2021
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Natural Gas Price Trends: Global And Domestic
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Sectoral Consumption of Natural Gas In June 2021
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Domestic Natural Gas Scene: June 2021
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Sector-Wise, Month-Wise Demand & Consumption of Natural Gas
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Growth In Import Dependency Of Natural Gas Halted
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Natural Gas Price: Global and Domestic
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Sector-Wise Consumption Of Natural Gas In May 2021
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Natural Gas Price Trends : Global And Domestic
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Sector-wise Consumption Of R-LNG, Domestic Gas Since FY 2018-19
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Natural Gas: India’s Increasing Import Dependency
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CGD Becomes An Attractive Business In India
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Quantity And Value Of Indian Crude Oil Imports (FY 2017-18 to FY 2020-21)
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Specific Energy Consumption Of PSU Refineries
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Weightage of crude oil, natural gas and petroleum products in Wholesale Price Index (WPI)
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Share Of Imported Crude Drops In Oil Processing
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High Sulphur & Low Sulphur crude oil processing
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Profit After Tax (PAT) Of Oil Companies
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India’s Rig Count Marginally Up In July
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The Rise And Fall Of India’s Petroleum Products Export
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Global Oil Demand Is Poised To Rise
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Global Rig Count Up
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Indian crude oil basket price in August 2021
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Contribution of Petroleum Sector to Union and State Exchequers
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Retail Selling Price of LPG, Kerosene in India & Neighbouring Countries
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Petroleum Products: Industry Consumption Trend Analysis
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Petroleum Products Import Down, Exports Up In July 2021
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India’s Crude Oil Import Up in July, OPEC’s Share Edges Up
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Share Of Domestic Crude Shrinks, High Sulphur Crude Up In July
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Product-Wise Consumption In July 2021
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Passenger Vehicles ,Two Wheelers Register Impressive Sales
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PSU Oil Marketing Companies, Shell Expand Marketing Infrastructure During Covid-19.
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Self-Sufficiency In Petroleum Products
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Story Behind Downgrading of India’s GDP
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ONGC’s Short Term Action Plan
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Indian Drilling Rig Count Up
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Recovering Economic Activity To Boost World Oil Demand, But Problem Areas Persist
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Impressive Growth In Passenger Vehicles,2 Wheelers
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Global Rig Count Up
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Prices In Indian Basket Of Crude In July 2021
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Capital Expenditure of PSU Oil Companies Moves At A Fast Pace
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Industry Consumption Trend Analysis
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Petroleum Products: Marginal Increase in Import, Big Jump in Exports In June 2021
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Tenders [FREE Access]
Cairn India
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