BPCL divestment: Killing the goose that lays golden eggs?

By Bihuti Pati

After the P V Narasimha Rao government kickstarted the liberalization process in the 1990s, the Atal Bihari Vajpayee-led dispensation went further ahead and was accused by the opposition of selling off the family silver as it started reducing public holding in various government-owned undertakings, including the blue-chip oil company Bharat Petroleum Corporation Limited (BPCL). Now the Modi regime’s moves to sell government stake in its entirety in these PSUs can only be called ‘opening the door for plunder and pillage of precious natural resources of India’, as per trade union activists.

In the biggest privatisation drive, the Union Cabinet on November 20 approved the sale of the entire government’s stake, not only in the BPCL, but also in Shipping Corporation of India (SCI) and onland cargo mover Container Corporation of India (Concor). It also decided to reduce public shareholding in select state-owned firms below 51 per cent to boost revenue collections that have been hit by the slowing economy. The Cabinet Committee on Economic Affairs (CCEA) approved sale of the government’s entire 53.29 per cent stake, along with transfer of management control, in the country’s second-biggest state-owned refiner BPCL. It, however, decided to remove the Numaligarh refinery in Assam from this ambit.

In a parallel move, the CCEA also approved reducing the government’s stake in select PSUs, like the Indian Oil Corporation (IOC), to below 51 per cent while continuing to retain management control. The management control will continue to be retained by the government till it considers the equity held by other state-run companies in the divested firm. The government currently holds 51.5 per cent in IOC and another 25.9 per cent through state-owned Life Insurance Corporation of India (LIC), and explorers Oil & Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). So the government can potentially sell 26.4 per cent for about Rs 33,000 crore.

A day after such major announcements regarding privatization of PSUs was made by Finance Minister Nirmala Sitharaman, Oil Minister Dharmendra Pradhan clearly indicated that public sector firms, such as the Indian Oil Corporation (IOC), may not be allowed to bid for buying the government stake in BPCL. “Since 2014, we have a clear vision that the government has no business to be in business,” Pradhan told reporters in Delhi when they sought clarifications regarding the government’s move. A lot of conjecture has been on, since the decisions were announced, over who would be interested in buying BPCL. Whether the likes of US oil  major ExxonMobil throw their hat in to participate in the strategic sale proposal remains to be seen, there are those who feel that interests could come in from firms like – Saudi Aramco or Abu Dhabi National Oil Company. A section of the industry feels that there is a strong chance of Americans looking at India’s energy space more diligently following the “Howdy Modi” rally at Houston (in oil-rich Texas) and the Prime Minister’s interaction with the CEOs from the US oil and gas sectors on the sidelines of this rally.

The government is now ready to launch roadshows for the strategic sale of BPCL in London (UK), the US and Dubai led by Department of Investment and Public Asset Management (DIPAM) and the Petroleum Ministry, official sources have said. The Ministry officials will also hold meetings with prospective investors and take their feedback to prepare the expression of interest document for the sale of BPCL, they added.

BPCL will be a lucrative offer for global players in the oil sector because it will come with widespread assets and give them access to the retail fuel market in India which is one of the fastest-growing in the world. BPCL operates four refineries at Mumbai, Kochi, Bina in Madhya Pradesh and Numaligarh in Assam with a combined capacity to convert 38.3 million tonnes of crude oil into fuel. Numaligarh Refinery, however, will not be disinvested because it was established under the Assam Accord. BPCL has 15,078 petrol pumps and 6,004 LPG distributors across the country. The asset valuation of the state-run refiner and retailer is continuing and there is so far no official figure in the public domain. The strategic sale of BPCL is expected to fetch the government a total of Rs one lakh crore, based on market capitalisation. However, the Federation of Oil PSU Officers (FOPO) has claimed that the true value of BPCL will be over Rs nine lakh crore.

In a recent letter to the Prime Minister, FOPO Convenor Mukul Kumar said “Technologically, infrastructure of BPCL is world-class and therefore, scope for incremental technological improvement by disinvestment is minimal. In the past two decades, BPCL has aggressively expanded its marketing network with a determination to remain competitive under all scenarios. Thus disinvestment at this stage will be like giving a fantastically engineered marketing machine on a platter to our competitors.” FOPO had earlier said the true value of BPCL would be Rs 9 lakh crore, which it had calculated after using a replacement method listed by DIPAM in its request for proposal to engage an asset valuer. Terming the strategic sale of BPCL as “immensely non-remunerative and counter-productive”, the oil PSU officers’ federation warned that if it is sold off on the basis of its market capitalisation, it would then lead to a notional loss Rs 4.5 lakh crore. “Further we also humbly want to submit that disinvestment of a highly profitable Maharatna PSU is an action which is beyond our comprehension, especially because it is constituent of strategic energy sector,” the letter said. BPCL has paid a total dividend of Rs 17,246 crore to the government in the last five years, the letter pointed out, it said. The FOPO also urged the Prime Minister to allow PSUs to participate in the bidding process for the strategic sale of BPCL and make way for an ONGC-HPCL kind of a deal. It demanded that employees unions and other stakeholders, like dealers, distributors etc, should also be permitted to participate in the disinvestment process. However, this demand has apparently been rejected by Minister Pradhan, saying “the government has no business to be in business.”

Earlier, the government had repealed the legislation that had nationalised BPCL in 1976. The Repealing and Amending Act of 2016 had annulled “187 obsolete and redundant laws lying unnecessarily on the Statue-Book,” that included the Act of 1976 that had nationalised the erstwhile Burmah Shell and turned it into BPCL. Now that this law has been repealed, the government will not be required to seek approval from Parliament to privatise BPCL. So, even if the courts are moved to prevent the sale of the entire government stake in BPCL, the petition would be rejected as the law does not exist anymore. A Supreme Court bench of Jjustices S Rajendra Babu and G.P. Mathur, on 16th September 2003, had ruled that the Centre will have to take prior approval from Parliament for selling stakes in the two PSU oil majors – HPCL and BPCL. The ruling had come after the petitioners (BPCL, HPCL unions) had contended that the then government’s to sell majority of the shares in HPCL and BPCL to private parties without parliamentary approval, is contrary to and violative of the provisions of the ESSO (Acquisition of undertaking in India) Act, 1974, the Burma Shell (Acquisition of undertaking in India) Act, 1976, and Caltex (Acquisition of shares of Caltex Oil Refining India Ltd. And all the undertakings in India for Caltex India Limited) Act, 1977. These laws were termed obsolete and repealed by the Modi government three years ago.

Opposition parties have naturally taken the BJP-led government to task, with Congress leader Randeep Singh Surjewala tweeting: “They did not create anything, but will sell everything. This is called selling the country. If there is Modi, it is possible.” The CPI(M), which supported the nationwide strike by BPCL employees and officers on November 28, said “in order to meet its profligate expenditure, mostly on propaganda and spin, this government is selling public assets to meet a target of raising Rs 1.10 lakh crore. In the process, productive and value-creating PSUs are being sold to promote their crony corporates to gain strategic control of the Indian economy.” It also said that the strategic disinvestment of public sector enterprises was like “selling the family silver to meet daily expenditure inevitably ruining the family”. The party had earlier said that the decision to allow up to 100 per cent foreign capital in the petroleum sector was a step towards handing over this vital sector to giant foreign oil companies and government displayed its eagerness to let foreign capital dominate in all key sectors. “The purpose of this vile conspiracy is to use national assets to fill the coffers of domestic and foreign companies. The present government is going about this greedily and with haste,” the CPI(M) has said.

Reacting to the government’s move to privatise major and profit-making PSUs such as BPCL, eminent economist Prabhat Patnaik recently said the Modi government, “with its total lack of understanding of the significance of the public sector and also with its closeness to the corporate-financial oligarchy, is prone to dismantling the public sector anyway. But now it feels an added urgency for doing so in order to cope with the fiscal squeeze that the economic downturn has brought in its wake”. He said when a private company buys public sector assets, “it does so not with resources raised through skimping on its expenditure like some petty shop-keeper, but through borrowing or through foregoing the purchase of some other assets, all of which amount to balance sheet adjustments. Now, if the government has a fiscal deficit of Rs 100, then it would be borrowing this sum from, say, a bank to finance this deficit. But if it privatises public sector assets to the same extent, then the private buyer of these assets would instead be borrowing Rs 100 from the bank to purchase these assets. To say that a fiscal deficit is “bad” for the economy but the sale of public sector assets is “okay”, amounts therefore to saying that expenditure financed by the government’s borrowing Rs 100 from the bank is “bad” but the same expenditure financed by a private entity borrowing from the bank is “okay”! This is totally without any economic rationale whatsoever.”

As the case of the BPCL and several other ‘Navratna’ PSUs show, they have given super normal returns to the public exchequer. Instead of selling such high performing PSUs, should we not be selling the loss-making ones? Oil is a strategic national resource and every country has its own strategic reserve. According to Trilochan Sastry, a Professor at IIM Bangalore, the United States maintains such an underground crude oil reserve to mitigate any supply disruptions. Some comparative figures for such reserves are: the U.S. over 600 billion barrels, China 400, South Korea 146, Spain 120 and India 39.1. “We do have plans to build perhaps the world’s largest refinery in India, with the help of Saudi Arabia, but ownership and control will be in foreign hands. With the strategic disinvestments, India will lose government control over both crude and refining. Nothing prevents any other country like Saudi Arabia from buying up refining capacity in India,” he says. So, is this strategic disinvestment akin to killing the goose that lays the golden eggs? Financially we are worse off by selling off such a profitable company and strategically the nation finds itself in a vulnerable situation due to such a sell-out.

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