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IOC seeks BPCL stake sale clarity
FINANCE & INVESTMENT
STATE-RUN Indian Oil Corp. (IOC) has said it is waiting for the government to clarify whether state-backed companies will be allowed to bid for New Delhi’s stake in Bharat Petroleum Cor- poration Ltd (BPCL).
IOC chairman Sanjiv Singh said on January 16 that the company would not reveal whether it was interested in the impending sale of the government’s 53.29% stake in the refiner until expressions of interest (EoIs) had been sought.
“We don’t know the conditions,” Singh told journalists, before adding: “We have no informa- tion whether [public sector undertakings] PSUs are allowed to bid or not.”
After a group of secretaries approved the gov- ernment’s plan to sell its stake in BPCL on Sep- tember 30, the Cabinet Committee on Economic Affairs (CCEA) decided on November 21 to sell the government’s entire interest.
Singh’s cautious stance on the sale stems from Minister of Petroleum and Natural Gas Dhar- mendra Pradhan’s comments on November 22 that the government was looking to privatise BPCL. Pradhan said at the time that the govern- ment had “no business to be in business” and that privatisation efforts in other sectors had yielded several successful examples.
BPCL is considered an attractive investment target, given that it has 38.3mn tonnes (770,000 barrels per day) of refining capacity, owns more than 15,000 retail fuel stations and has a network of 6,000 liquid petroleum gas (LPG) distributors. The country has 249.4mn tonnes (5mn bpd) of refining capacity, more than 65,500 fuel stations and 24,000 LPG distributors.
New Delhi has, however, decided to sell BPCL’s Numaligarh Refinery in Assam State sep- arately to a state-controlled player. Comment- ing on IOC’s potential interest in the refinery’s associated assets, Singh said: “We don’t know if Numaligarh Refinery will be sold with market- ing infrastructure or without its marketing infra- structure. We have to wait for details before IOC can take any decision.”
PTI reported on that the government’s stake in BPCL was valued at around INR534bn ($7.51bn).
Questions about IOC’s interest in BPCL come at a time of growing opposition to the privatisation. Not only have the govern- ment’s opponents criticised the deal, but trade unions have also condemned the sale. But there are a number of reasons that make a sale to IOC unlikely.
Reasons against
State-run Oil and Natural Gas Corp.’s (ONGC) purchase of the government’s 51.11% interest in refiner Hindustan Petroleum Corporation Ltd (HPCL) in January 2018 for INR369.15bn ($5.19bn) has not been without its troubles and reports have been swirling since last year that the upstream-focused major was ready to sell on the stake.
ONGC’s acquisition of HPCL plunged the company into debt, with the developer owing INR215.93bn ($3.04bn) at the end of financial year 2018-2019. The acquisition was supposed to let both companies to benefit from the amal- gamation of upstream and downstream assets, which would allow them to ride out any interna- tional oil price volatility. But ONGC has strug- gled to integrate the company, managing to appoint just one member to HPCL’s board after two years as majority owner.
Back to IOC and reports have emerged that New Delhi may even be ready to reduce its direct holdings in the refiner to below 51% in a bid to boost government funding. The state might be willing to sell up to 26.4% of IOC for INR330bn ($4.64bn), Bloomberg reported on November 14 citing unnamed sources. Such a deal would still leave the state with retain indi- rect control of the company.
While a sale to of BPCL to IOC and a divestment would allow the government to continue meeting its annual divestment tar- get, which for financial year 2019-2020 stands at INR1.05tn ($14.77bn), such a consolidation of the downstream would go against the gov- ernment’s previously stated desire of making the sector more competitive by encouraging foreign and private investment.™
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w w w. N E W S B A S E . c o m Week 03 22•January•2020