This is the start. After regaining power in 2019, Modi’s government prepared a plan to raise as much as $44 billion over 5 years by selling down its stakes in companies including Oil and Natural Gas Corp, Indian Oil, Coal India, NMDC, BEML, Shipping Corporation and Bharat Heavy Electricals.


Bibhuti Pati

The Indian government’s large scale disinvestment of its stake in Bharat Petroleum – the Indian version of Burmah Shell – is expected to raise some big bucks for the nation, almost a record ₹75,000 crore or more for the government’s entire 52.98 per cent stake in BPCL. What is important to note here is that the share price of BPCL has plunged by nearly a fourth since the time the strategic sale was approved in November last year.

But the government wants the sale to happen, big cash in the coffers means it will ease fiscal pressures.

So now, let’s check out what this sale means for India? And more importantly, what are the larger objectives of this move? Is it about raising revenues, or improving efficiencies, or broadening the capital market? And more importantly, what are the implications of the BPCL stake sale and what it augurs for the future of India’s disinvestment policy.

On paper, the Centre has confirmed that it has received three preliminary bids for the acquisition of controlling stake in BPCL. Oil minister Dharmendra Pradhan said this will be a big sale and help the government raise the necessary cash to ease the fiscal pressures.

Who all are interested?

Mining giant Vedanta has confirmed putting an expression of interest (EoI) to buy out the government’s 52.98 per cent stake in India’s largest fuel retailer. The other two bidders are global funds, one of which is Apollo Global Management. A special purpose vehicle (SPV) floated by BSE-listed Vedanta Ltd and its London-based parent Vedanta Resources submitted an EoI before the close of the deadline on November 16, 2020.

Talking at a webinar series on The Road To Atma Nirbhar Bharat, organised by a news magazine, the minister said there was a lot of interest for BPCL and as many as three parties have given EoI for the bidding process. And that there would be no extension in the deadline for the BPCL bids because the government was happy with the response it got from the companies. Pradhan said the government wants to privatise some of the public sector undertakings (PSUs to bring in some global professionalism and competition. “As I have earlier said, the government is committed to offloading its share from some state-owned companies. That way more professionalism and competition will come. We are committed and keen on that aspect,” he told the webinar.

Critics have argued against the sale, saying it could mean job losses for an estimated 12,000 plus staff of BPCL, certainly not a good sign in the midst of the Covid-19 pandemic. But the government has assured there would be no job loss and that the new owner will ensure jobs are protected. But fears still persist. Many energy experts have argued that the sale comes at a time when the world is moving away from conventional fuel. But the government has not responded.

Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management(DIPAM) had tweeted on November 16, 2020 – the last date for bidding – that transaction advisors (TAs) for the sale had reported receiving “multiple expressions of interest”.

“The transaction will move to the second stage after scrutiny by TAs,” he said.

Now there were initial rumours that Mumbai-based Reliance Industries could be interested in BPCL but the group has not said anything about its interests.

What does it mean for RIL if it gets BPCL? Billionaire businessman Mukesh Ambani-led RIL that operates the world’s largest oil refining complex at Jamnagar in Gujarat, intends to expand into the retail business and has strong ambitions to sell fuel. What is interesting is that RIL has also hired former BPCL chairman Sarthak Behuria and former IOCL chairman Sanjeev Singh. Are these two connected to RIL’s plan to bid for BPCL. No one is saying anything. If at all that happens, Reliance will be able to combine its Jamnagar refinery with BPCL’ Mumbai, Kochi and Bina units and merge more than 1406 of its fuel stations with BPCL’s 17,138 petrol pumps.

There were also rumours that big energy companies such as UK’s BP Plc, Total of France and Saudi Aramco will come for the bid for the state-owned company. But that did not happen.

And Vedanta’s interest in BPCL stems from its $8.67 billion acquisition of oil producer Cairn India nearly a decade back. The company produces oil from oil fields in Rajasthan which are used in refineries such as those operated by BPCL to turn them into petrol, diesel and other fuels.

The transaction advisors have begun evaluating the EoIs to ascertain if the bidders meet the qualifying criteria and have the financial muscle to carry out the acquisition. And then, a request for proposal (RFP) will be issued and financial bids sought.

On paper, BPCL operates four refineries in Mumbai (Maharashtra), Kochi (Kerala), Bina (Madhya Pradesh), and Numaligarh (Assam) with a combined capacity of 38.3 million tonnes per annum. This is 15.3 percent of India’s total refining capacity of 249.8 million tonnes. The stake sale will give buyer access to 15.3% of India’s oil refining capacity from BPCL’s three refineries – Mumbai, Kochi in Kerala and Bina in Madhya Pradesh, and a nationwide readymade fuel retailing network that controls 22% market share in the world’s fastest-growing energy market. While the Numaligarh refinery will be carved out of BPCL and sold to a PSU, the new buyer of the company will get 35.3 million tonnes of refining capacity — 12 million tonnes Mumbai unit, 15.5 million tonnes Kochi refinery and 7.8 million tonnes Bina unit. BPCL also owns 17,355 petrol pumps, 6,156 LPG distributor agencies and 61 out of 256 aviation fuel stations in the country. It is India’s second-largest oil marketing company with a standalone domestic sales volume of over 43.10 million tonnes and a market share of 22 per cent during FY20. It is India’s sixth-largest company by turnover. What is interesting is that the BPCL petrol pumps sell more fuel than the industry average — BPCL pumps sell 124 kilolitres per month compared to the industry average of 116, according to the company’s website.

This is not all.

BPCL also has an upstream presence with 26 assets in nine countries including Russia, Brazil, Mozambique, the UAE, Indonesia, Australia, East Timor, Israel and India. It is also making a foray into city gas distribution and has licences for 37 geographical areas (GAs).

The government is keen on closing the stake sale before March 31, 2021, for meeting the record Rs 2.1 lakh crore divestment target set by Finance Minister Nirmala Sitharaman for FY21.

The sale is important because India plans to set tough financial targets for state-run firms to try to improve their valuations ahead of a push by PM Narendra Modi to privatize some companies. Modi wants public sector companies to focus on improving market capitalisation and dividend payouts from the 2021/22 fiscal year, starting April, as well as ramping up the sale of non-core assets. State-run companies have traditionally largely targeted raising output and increasing revenues, rather than improving efficiency and valuations, contributing to years of share price underperformance versus the broader market. The BJP-led NDA government feels PSUs need to raise their valuation and profitability in a changing business environment. Then only we will be able to get a better price (from stake sales). Shareholders and investors should be rewarded.

This is the start. After regaining power in 2019, Modi’s government prepared a plan to raise as much as $44 billion over 5 years by selling down its stakes in companies including Oil and Natural Gas Corp, Indian Oil, Coal India, NMDC, BEML, Shipping Corporation and Bharat Heavy Electricals.

Changes in the annual target policy had been suggested by the Department of Investment and Public Asset Management (DIPAM), which spearheaded the federal government’s stake sale drive. And for companies in which the government wants to cut its stake, DIPAM will set targets like listing, buyback, offer for sale, minimum public shareholding norms and strategic disinvestment to help the government get a better price for any sell-down.

Let’s wait for the sale to happen.


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