Indian government‘s plan to disinvest BPCL

The Indian government is selling its 53.29% stake in the country’s second-largest fuel retailer and third-biggest oil refiner, BPCL. A potential acquirer of BPCL may want to shed excess workforce, which is a typical legacy issue with all public sector units, and strip some of the non-essential assets such as land and buildings.

The deadline for submission of Expressions of Interest (EoI) is extended up to 30 September 2020 from the initial announcement in November 2019. This was done with the view of the situation arising out of COVID 19 and further requests from the Interested Bidders (IBs).

BPCL is India's 2nd largest fuel retailer and it is a Maharatna Company with eight subsidiaries. It owns 15078 petrol pumps, 6004 LPG distributors, 52 LPG plants, 123 petrol depots, 56 aviation service stations, and has a presence in seven countries. The total refining capacity of BPCL is 35 million tonnes annually. The company operates four refineries in Mumbai, Assam, Madhya Pradesh, and Kerala.

BPCL will give the acquirer ready access to 15.33 percent of India's oil refining capacity and 22 percent of the world's fastest-growing fuel market share. Saudi Aramco and French giant Total are potential buyers.

Initially, it was believed that the government intends to disinvest those organizations that have been draining the government's treasury and running into losses, for example, Air India. In 2019, the government had a disinvestment target of Rs 1.05 lakh crore, which has now doubled to 2.10 lakh crore. The government is privatizing both Air India and BPCL to achieve this huge target.

Against Privatization

BPCL's annual profit has also increased by 16 percent until March 2019 and is listed in Forbes (2018). The government has planned to disinvest BPCL at around 68000 crores, whereas Essar oil with one refinery at Vadinar Gujarat, was sold to Russia's energy giant Rosneft in 85000 crores in 2017.

The current government has also struck down the law stating that HPCL and BPCL can only be disinvested only after taking the parliament's concurrence.

Employee unions are against the government's decision to sell its stake in BPCL since that might bring uncertainty to their positions within the organization. 

For Privatization

BPCL Chairman D Raj Kumar "Disinvestment of BPCL is expected to unlock tremendous value by way of enhanced professionalism, access to advanced technologies, newer global market, diversified product portfolio and improved availability of resources, further propelling our growth journey."

There is a steep jump in the stock market value of BPCL as compared to HPCL, which will be under government control. The increase in stock value of BPCL reflected anticipated gains from improvements in the efficiency of BPCL.

The basic economic principle also guides the disinvestment decision of the government which states that the government should discontinue its involvement in the manufacturing and production of goods and services in such sectors where competitive markets have come into the picture. These organizations are likely to perform much better in private hands with better excess to technology up-gradation and efficient management practices.

PSUs sold in the past by the government have also earned huge profits after getting privatized, and their return on assets and equity also improved significantly post-privatization. Strategic disinvestment pushed these public sector enterprises towards optimizing their economic potential.

 
After the government has approved the strategic disinvestment of BPCL, the value of shareholders' equity has increased by 33000 crores compared to HPCL.

It is also believed that privatization will promote efficiency and competitiveness among the management and increase the organization's potential to earn higher profits.