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.