New Delhi: It may still be a long road ahead for privatisation of public sector oil refiner Bharat Petroleum Corporation Ltd (BPCL).
The possibility of legal challenge over any plan to sell the government stake in the oil PSU has pushed executives and government officials to seek fresh legal opinion on the proposed disinvestment move.
"BPCL and HPCL were acquired through an Act of Parliament. In these two cases, the Supreme Court also gave an order restraining the government from selling its equity without Parliamentary approval. After this, several legislations were repealed by the government through the 2016 Repeal Act. We need to see what the Repeal Act says. As the narration becomes clear and legal people check whether Parliamentary approval is needed or not needed, the privatisation of BPCL can go through," said a top executive of one of the state-owned OMCs.
There is caution in going ahead with the privatisation of BPCL as in the past, especially in 2003, a similar proposal on disinvestment went through serious legal challenges that ultimately resulted in the Supreme Court axing the plan and asking the government to sell shares only after Parliament's nod. "As of today, I don't think the full details are available on the modalities and the methodologies which are going to be followed. Based on that only, something can be said otherwise it will be premature," another senior executive of an OMC that faced similar issues in 2003. The Repealing and Amending Act, 2016 had quietly annulled 187 obsolete and redundant laws lying on the statute books. In the process, the laws, under which oil companies HPCL and BPCL were nationalised, were also repealed.
These included the Esso (Acquisition of Undertakings in India) Act, 1974, The Burmah Shell (Acquisition of Undertakings in India) Act, 1976, and the Caltex (Acquisition of Shares of Caltex Oil Refining (India) Limited and of the Undertakings in India of Caltex (India) Limited) Act, 1977. Now the 2016 Repealing Act is being cited to conclude that BPCL privatisation may not require a fresh Parliamentary nod.
The plan to sell majority stake in BPCL is first serious attempt towards privatisation of non-strategic PSUs after the exercise lost steam post 2004. Under the previous BJP-led NDA regime headed by Atal Bihari Vajpayee in the late 1990s, the government had sold its stake in companies such as Videsh Sanchar Nigam Ltd, Hindustan Zinc, Balco and IPCL to private entities. With regard to BPCL, the plan is to sell entire 53.3 per cent stake held by the Centre to a strategic partner. This could either be done at one go or in parts. The government may also decide to retain some portion of the equity but a call will be taken after getting sense of investor interest for the profit-making PSU. At last Monday's (September 30) share price of Rs 490.45 on BSE, the government's 53.29 per cent stake in the BPCL is worth Rs 56,000 crore or around $8 billion. This is more than half of the FY20 disinvestment target of Rs 1,05,000 crore. Keeping in mind the global economic environment, the government could reduce the share sale, to say 26 per cent, to get right investor interest.
While no Indian company looks like mobilizing such huge funds for BPCL's buy, industry experts hinted that companies from Russia and the Gulf region could be targeted to get the necessary investment. This, sources said, could be done through government to government talks as most oil companies in the region are state-controlled.
The BPCL, in present times, will be an attractive buy for companies ranging from Saudi Aramco of Saudi Arabia to French energy giant Total SA which are vying to enter the world's fastest-growing fuel retail market including entry in retail space where BPCL has significant presence. Alternatively, the government could also keep other oil PSUs such as Indian Oil Corporation (IOC), or OIL India on a standby to go in for share buybacks in the event strategic sale to a private partner met with little success. Both HPCL and BPCL's disinvestment was blocked even in 2003 when Supreme Court had ruled that the two oil companies can be privatised only after Parliament amends a law it had previously passed to nationalise the two firms. The decision came after a high-profile case was fought in the court between F.S. Nariman and Shanti Bhushan representing the petitioners including oil sector officers association and Harish Salve representing the government.
Only last year, state-owned upstream major ONGC bought the government's entire 51.11 per cent stake in HPCL. BPCL was previously Burmah Shell, which in 1976 was nationalised by an Act of Parliament. Burmah Shell, set up in the 1920s, was an alliance between Royal Dutch Shell and Burmah Oil Co and Asiatic Petroleum (India).
The Supreme Court had in September 2003 cited the ESSO (Acquisition of Undertaking in India) Act and the Burmah Shell (Acquisition of Undertaking in India) Act, 1976 and Caltex (Acquisition of Shares of Caltex Oil Refining India Ltd and all the Undertakings in India for Caltex India Ltd) Act, 1977 to rule that the government cannot privatise HPCL and BPCL without approaching Parliament for changing the nationalisation act. BPCL operates four refineries at Mumbai, Kochi in Kerala, Bina in Madhya Pradesh and Numaligarh in Assam with a combined capacity to convert 38.3 million tonnes of crude oil into fuel. It has 15,078 petrol pumps and 6,004 LPG distributors.
The government proposes to raise Rs 1.05 lakh crore from disinvestment in the current financial year. It had exceeded asset-sale targets of Rs 1 lakh crore in FY18 and Rs 80,000 crore in FY19.