The Department of Investment and Public Asset Management (DIPAM) said that the government has called off the present expression of interest (EoI) process for strategic disinvestment of state-run refiner BPCL following multiple waves of COVID-19 and the geopolitical crisis between Russia and Ukraine that affected the oil and gas industry amongst others.
This happened after a majority of qualified interested parties (QIPs) expressed their inability to continue with the current process due to the prevailing conditions in the global energy market.
Anil Agarwal’s Vedanta group and US venture fund Apollo Global Management Inc and I Squared Capital Advisors had expressed interest in buying the government’s 53 per cent stake in BPCL.
Reasons why the government called off the divestment of its stake in BPCL
Lack of competitive bidding, lack of freedom on fuel pricing and a global move towards green fuels are some of the reasons why the government called off the divestment of its stake in BPCL.
The government had planned to sell its entire 52.98% stake in Bharat Petroleum Corporation Ltd (BPCL) and invited Expressions of Interest (EoIs) from bidders in March 2020. It received three bids by November 2020. However, the privatization was stalled after two bidders walked out over issues such as lack of clarity in fuel pricing, with just one bidder-Vedanta, left in the fray.
Public sector fuel retailers control about 90 % of the petrol and diesel market. They sell these fuels at prices below the cost. BPCL and similar fuel retailers are losing money as they have failed to pass on the soaring costs of crude oil to consumers. The prices of crude oil rallied mainly after several western nations imposed sanctions on Russia which is one of the world’s largest energy producers, amid the war.
Rising fuel prices accelerated the tilt towards green energy sources and have thrown up fresh issues for bidders, posing challenges for the disinvestment process.
“Owing to prevailing conditions in the global energy market, the majority of QIPs have expressed their inability to continue in the current process of disinvestment of BPCL,” the government said.
“We need to go back to the drawing board on BPCL. There are issues in terms of consortium formation, geopolitical situation and energy transition aspects,” an official told PTI. The official added that the transition towards green and renewable fuel has made privatisation difficult in existing terms.
The divestment proposal required bidders to have a net worth of at least $10 billion and excluded public sector units with government ownership of 51% and more.
What is the government considering now?
“The total stake that may be offered to potential buyers too needs a rethinking in current conditions and easing of terms to help investors in forming a consortium,” the official said.
The government is taking a fresh look at BPCL’s privatization, including revising the terms of sale. It may offer a 26 per cent stake along with management control in the company, considering the geopolitical situation and energy transition, and this will limit the amount of money that a bidder has to put upfront to buy the company.
