OPINION: BPCL disinvestment: Will the buck stop with Indian Oil?

By: |
Published: October 15, 2019 11:58:05 AM

The Modi government's plan to privatise BPCL hasn't received an enthusiastic response from prospective buyers.

SBI Debit Cards: Daily ATM cash withdrawal limit for different cardsThe BPCL sale could fetch the government more than half of its disinvestment target of Rs 1.05 lakh crore for the financial year ending March 2020.

The Modi government’s plan to privatise BPCL hasn’t received an enthusiastic response from prospective buyers. News reports suggest that Mukesh Ambani-led Reliance Industries is unlikely to bid for India’s second largest fuel retailer. Apart from the UK-based BP that gave a measured response to the sale offer, no international oil company has expressed interest in buying BPCL after a group of secretaries approved the sale of the government’s 53.29 per cent stake last month. If the government is unable to find a buyer, the onus to buy BPCL could fall on Indian Oil, the country’s largest fuel retailer. The government did not issue a denial when a newspaper reported last month that the Prime Minister’s Office discussed the possibility of merging Indian Oil and BPCL at a meeting with officials of the department of economic affairs and the ministry of petroleum and natural gas.

The BPCL sale could fetch the government more than half of its disinvestment target of Rs 1.05 lakh crore for the financial year ending March 2020. The government had nudged oil explorer Oil and Natural Gas Corporation (ONGC) last year to buy its 51 per cent stake in Hindustan Petroleum Corporation (HPCL). While it boosted the Union government’s finances, the Rs 36,915 crore deal damaged ONGC’s ability to invest in its core business.

Also read: HUL remains skeptical about rural demand even after Q2; says, trusts govt to improve agrarian wages

Buying BPCL would be an expensive affair for the buyer. Picking up the 53 per cent government stake and the mandatory open offer to minority shareholders together could cost close to Rs 90,000 crore. The enormity of the deal limits the number of possible buyers. The government is expected to persuade large multinationals such as Saudi Aramco or Abu Dhabi National Oil Co for a deal that may offer them more than a toe-hold in one of the fastest growing fuel markets.

Despite the high price tag, BPCL would be an attractive proposition for global firms. The retailer controls a fifth of the fuel retailing market in India through its 15,078 fuel stations. It also owns 15 per cent of the country’s oil refining capacity and has more than 6,004 cooking gas agencies. The company posted revenues of Rs 3.4 lakh crore and a consolidated profit of Rs 8,528 crore.

There have been some large deals in petrochem space in the last two years. On Monday, French multinational Total said it was picking up 37.4 per cent stake in Adani Gas. The companies had inked a 50:50 partnership to import and sell natural gas in India last year. Saudi Aramco is investing more than Rs 1 lakh crore to pick up 20 per cent stake in Reliance’s petrochemical business. Russia’s Rosneft and Trafigura-UCP spent $12.9 billion in 2017 to pick up 98 per cent stake in Essar Oil.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1French energy major Total to buy 37.4% stake in Adani Gas
2Outreach by banks: Loans of Rs 82,000 cr disbursed in just 9 days, says FM Sitharaman
3Tribunal rap: NCLAT asks ED to release attached assets of BPSL