The Telegraph
Since 1st March, 1999
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Pressure builds up to allow public sector in oil selloff

New Delhi, Aug. 27 (PTI): The petroleum ministry is likely to bargain for allowing public sector companies like Oil and Natural Gas Corporation (ONGC) to bid in lieu of agreeing to the strategic sale of Hindustan Petroleum and Bharat Petroleum ahead of a market float.

“If strategic sale is what is agreed upon, then we would want everybody to be allowed to bid. The policy of allowing PSUs to bid for other companies on the block like Engineers India Ltd and shipping Corporation of India, should be continued in case of HPCL and BPCL too. You cannot have two sets of policies,” highly placed sources said.

While the Cabinet Committee on Disinvestment (CCD) had in February barred the only state-run refiner Indian Oil from bidding for HPCL and BPCL, the disinvestment ministry is learnt to have moved a proposal to ban all PSUs from bidding for the two highly profitable oil marketing companies.

“The government can realise better value for BPCL and HPCL only when everybody, including PSUs with financial muscle (like ONGC) are allowed to bid. Barring them could result in selling the crown jewels for a song,” they said.

Contrary to the hype that global oil majors were waiting to open their coffers, but for Royal Dutch Shell, none of the big names being dropped have even seriously studied the Indian downstream market during the last three years.

“None of the big names floating around would want to put in Rs 10,000 crore, the total estimated outgo for buying equity in BPCL or HPCL plus the mandatory 20 per cent open offer,” sources said, adding that left only a couple of Indian players with reliance leading the race.

Sources said petroleum minister Ram Naik is likely to make a presentation at the next CCD meeting on issues before strategic sale including completion of capacity addition projects.

Naik, who has been pushing for an initial public offering (IPO) of equity shares prior to privatisation to garner funds for crucial capacity addition projects, would also impress upon the Cabinet the need for a strategic partner with commitment to complete the 9-million tonne Bhatinda refinery of HPCL and 6-million tonne Bina refinery of BPCL.

The projects are not only essential for meeting petroleum product requirement of Punjab and Madhya Pradesh but also adjoining states, Naik is likely to argue, while pointing out that about Rs 500 crore have already been spent on the projects.

“The strategic partners acquiring the government’s 36 per cent equity in BPCL and 26 per cent in HPCL may not pursue the projects for lack of commensurate demand growth and that’s why we want completion of the Rs 9,500 crore Bhatinda refinery and Rs 6,500-crore Bina refinery built into the shareholders agreement,” they added.

Alternately, the two companies should be allowed to raise resources from the market through an IPO before divesting them, Naik is likely to argue.

While the petroleum ministry has already moved a Cabinet note on BPCL’s IPO of 50 million equity shares, HPCL’s subsidiary Shree Guru Govind Singh Refinery Ltd, which is implementing the Bhatinda refinery project, too has proposed an IPO.

Sources said the disinvestment ministry was opposed to an IPO of equity shares as it would delay implementation of the earlier CCD decision of a strategic sale.

It proposes to invite initial bids for BPCL next month and complete the sale before the end of current financial year. Disinvestment of HPCL would happen in the first quarter of 2003-04, sources added.

Naik’s presentation, similar to the one made by disinvestment minister Arun Shourie at the CCD meet last month, would focus on allowing the two refiners freedom to raise resources for the expansion projects and delaying strategic sale for the time-being.

The disinvestment ministry, on the other hand, has argued that the decision to raise funds and completing the projects should be left to the strategic partner, sources said.

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