BPCL divestment: Strategic sale can spur pricing reforms

The Centre’s plan to sell 53.29 per cent stake in BPCL needs to be carefully executed. The proceeds from this sale — about ₹61,000 crore at BPCL’s current stock price levels — will form the centrepiece of the Centre’s ambitious disinvestment target of ₹1.05 lakh crore in FY20. A left hand-to-right hand transaction with another public sector oil company, similar to the HPCL-ONGC deal last year, might seem a politically palatable option. But this will result in sub-optimal realisations for both the Centre and minority shareholders, who may be denied the benefit of a higher price in an open offer. The other more rewarding option that the Centre seems to be actively pursuing is strategic disinvestment, or privatisation. The Centre can command a higher controlling premium for BPCL from private players, domestic or foreign, than from a PSU. This is in view of BPCL’s position as a profitable Maharatna company accounting for about 15 per cent of the refining capacity and a quarter of the fuel retail outlets in India. Besides, BPCL has stakes in gas companies such as Petronet and Indraprastha Gas, and a presence in gas fields in Brazil and Mozambique.

Time for the disinvestment, however, is rapidly running out, with just about five months to the fiscal year-end, and the hurdles numerous. One, BPCL’s employees have expressed reservations and their concerns need to be addressed. Two, there is some political resistance, especially in Assam where the BPCL-controlled Numaligarh refinery was established as part of the Assam Accord of 1985. Three, recent reports that BPCL’s Mozambique gas deal is under the government’s scanner could spook potential investors. Four, determining the optimal valuation of the multi-part complex entity that BPCL is, may need time. It is essential to realise the best value for a strong asset and not rush through with the sale. Five, the FDI policy may have to be amended to enable foreign players to acquire more than the current limit of 49 per cent in the PSU refiner. The Centre retaining a golden share, even a small one, may put off potential investors. Last but not the least, the Centre will have to convince investors of its intent to have genuine market-linked pricing of petrol and diesel, and adjust taxes to reduce prices at the pump. The reliance on petroleum to boost tax revenues has carried on for too long. That said, the recent relaxation of fuel retailing norms indicates that reforms are afoot, with the role of private players set to grow.

The argument that privatising BPCL will compromise the energy security of the country is debatable. The Centre will continue to have a significant presence in the fuel market through its majority stake in Indian Oil — the largest PSU oil refiner and marketer. If ONGC continues to hold its stake in HPCL, the Centre will have control here too, though indirectly. BPCL’s stake sale can usher the necessary pricing and fiscal reforms, if managed sensibly.