When the Centre first announced the privatisation of oil & gas company Bharat Petroleum Corp Ltd (BPCL), it triggered a lot of angst. Employees of the public sector undertaking (PSU) were worried about job losses. There were concerns that foreign entities may end up holding a majority stake in a domestic energy major. Queries rose on why the Centre was walking away from a profit-making PSU.
Now, with less than three months to go for the financial year to end, it is increasingly evident that the disinvestment is not happening immediately. Media reports indicate that BPCL has attracted just three bids till date; of these, two are yet to arrive at a financing plan for the estimated ₹60,000 crore purchase.
The non-sale of BPCL hits the Centre’s disinvestment plan in two ways. One, the Centre is likely to miss its ambitious FY 2021-22 disinvestment target of ₹1.75 lakh-crore, which in turn may hurt its fiscal deficit target. Two, it pulls down the morale around its privatisation proposals. What it gained in selling off Air India to the Tata Group after several years of struggle could be undermined by the apparent lack of bidder interest in BPCL.
Pandemic and other disruptions
On April 10 last year, the Centre gave interested parties access to BPCL data. The initial plan was to call financial bids by August, so that an agreement would be signed by September, and the sale completed by March 2022.
The second wave of COVID, however, put paid to the plan, as physical inspection of BPCL’s plants could not be carried out. The PSU operates a refinery each in Mumbai, Kochi, Bina (Madhya Pradesh) and Numaligarh (Assam). (Later in the year, BPCL sold off its stake in the Numaligarh refinery.)
This apart, the year saw volatile crude prices, and a decline in production as well as capital expenditure. Now, March 31 does not seem a viable deadline for the BPCL disinvestment. Among several elaborate processes, the buyer may need to get approval from the lenders to PSU, which typically takes a few months, said media reports.
Private players who have expressed interest in BPCL so far include mining and energy billionaire Anil Agarwal’s Vedanta group, private equity company Apollo Global, and Think Gas Distribution, which is backed by I Squared Capital.
Why did the sale not go through?
Corporate observers say the size of the stake on the block may have put off bidders for BPCL. In earlier disinvestments, such as Balco and Hindustan Zinc, the Centre had sold a 26% stake with management control.
However, in BPCL’s case, a 52.98% stake was offered. This made the deal size so big that several players could not arrange the finances; not many were keen to undertake such large debt either. Also, amid rising climate concerns, oil & gas is increasingly viewed as a risky play, which again worked against BPCL.
The initial public offering (IPO) of Life Insurance Corporation (LIC), also slated for the current fiscal, is now all the more critical to the Centre. The insurance behemoth is expected to file its draft prospectus with the Securities and Exchange Board of India (SEBI) by the third week of January and get listed by March 31. The IPO, estimated at ₹1 lakh-crore, would be India’s largest ever, and considerably bolster government finances.