The privatisation of Bharat Petroleum Corporation Limited (BPCL) is on the way. The starting bids will be closed on Monday amidst rumors that oil giants such as UK’s BP Plc, France’s Total, and Saudi’s Aramco are unlikely to bid.
BPCL is India’s second-largest oil refining and marketing company. The government of India is selling its entire 52.98% stake in BPCL. The government had extended the date of putting in the preliminary Expression of Interest (EoI) on four different occasions. The current deadline is November 16.
Tuhin Kanta Pandey told PTI last month that there would be no further extension on the deadline. Pandey is the Secretary of the Department of Investment and Public Asset Management (DIPAM).
According to industry sources, there are remote chances that British Petroleum (BP) and Total would bid for the stake. Additionally, Russian energy giant Rosneft or the allied Saudi Arabian oil conglomerate Aramco is also not eager to bidding on BPCL, according to sources. The asking price of approximately $10 Billion to acquire the firm is one reason for the companies to back out. Also at a time when the world is trying to come up with alternative solutions to conventional fuels, an asking price of $10 Billion seems like a stretch.
Investors worry if the BPCL acquisition is a good decision
The ongoing Coronavirus pandemic has also led to a demand for the abandonment of conventional fuels and speed up the transition towards alternative and cleaner fuel sources such as Hydrogen and Battery-operated EV’s. Investors are weighing on if the BPCL acquisition would make sense in the undetermined demand scenario.
With the closing price of Rs. 412.70 on the BSE, the government’s 52.98% stake in BPCL is worth Rs. 47,430 Crores, on Friday. The buyer would also have to make an opening offer to buy an additional 26% stake from the public, worth Rs. 23,276 Crores. Sources indicate that for the investor to recuperate the bid amount of Rs. 70,000 Crores, the BPCL would have to make a profit of approximately Rs. 8,000 Crores annually at the current rate.
Reliance, ADNOC among potential buyers
Reliance has recently hired BPCL Chairman Sarthak Behuria and a few weeks back hired Indian Oil Corporation (IOC) Chairman Sanjiv Singh. Sources say that this could be linked with the Mukesh Ambani-led company’s desire to bid for BPCL. Until now, there has been no word from Reliance. Although, it would make sense for Reliance to incorporate their Jamnagar refineries with the Mumbai, Kochi, and Bina units of BPCL. This would also mean merging more than 1,406 fuel stations of Reliance with 17,138 petroleum pumps of BPCL.
Other potential investors include Russian oil giant Rosneft’s Nayara Energy, Abu Dhabi National Oil Corporation (ADNOC), Cairn India, ExxonMobil, etc.
BPCL controls 4 refineries in India. They are located in Mumbai (Maharashtra), Kochi (Kerala), Bina (Madhya Pradesh), and Numaligarh (Assam). With a combined capacity of 38.3 million tonnes per annum, they account for 15.3% of India’s total refining capacity of 249.8 million tonnes. The Numaligarh refinery would be taken from BPCL and sold to a Public Sector Undertaking (PSU). The buyer would acquire the remaining 35.3 Million tonnes of refining capacity.
As the finance minister has set the goal of meeting the record Rs. 2.1 Lakh Crore’s target, the privatisation of BPCL is an essential matter. The acquirer would have access to 15.3% of India’s oil refining capacity and 22% of the fuel market share in the fastest-growing energy market globally. The bidding would take place in two stages. The bidders who qualified in the first EoI phase would be asked to pitch in a financial bid in the second stage. PSU’s are not qualified to take part in the privatisation.