The Telegraph
Since 1st March, 1999
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Tug-of-war on sale of Bharat Petro

New Delhi, Dec. 24: A fresh turf war has broken out between the disinvestment and petroleum ministries over the extent to which the government should divest its stake in Bharat Petroleum Corporation Limited (BPCL).

The disinvestment ministry wants to sell about 25-35 per cent stake in the company through an offering to the public and about 5 per cent to employees. This will reduce the government’s holding to 26-36 per cent in the petrol marketer.

However, the petroleum ministry, headed by Ram Naik, wants the combined holding of the government and employees to be around 50 per cent.

Naik’s ministry has let it be known that it is in favour of a smaller public issue and larger offering to employees, nearer 10 per cent, through an ESOP scheme which will allow the government and employees combine to remain in absolute majority control of the oil major. The issue is expected to be resolved either towards the end of this week or early next week when the Prime Minister calls a meeting of the Cabinet Committee of Disinvestment.

The government had delayed a CCD on the issue as it has asked the attorney general to give his opinion on whether it is necessary to repeal Bills nationalising HPCL, a sister concern of BPCL, before it could reduce its holding to below 50 per cent and relinquish management control to a strategic investor.

Naik is obviously demanding the retention of better control leverage in BPCL as he fears provisions in the public offer document and the company’s law will not be able to stave off market predators, once over 50 per cent of the holding in the oil company is out in the open market.

Nearly 39 per cent holding in BPCL is out in the open market, though a substantial chunk of that is with state-run financial institutions and mutuals. But Naik fears that with a part of UTI being privatised and FIs being encouraged to sell off holdings to shore up their balance sheet, it will be easy for a determined predator to take control of the firm, especially if government holding is as low as 26 per cent.

The petroleum ministry also wants the Employees Stock Option Scheme to be modelled on the Maruti ESOP scheme where the shares are held in trust by an employees’ organisation. Once an employee retires, he is forced to sell his holding back to the trust, which is passed on to another employee. Only the trust can sell or buy shares in the market with the employees' money.

This will lock up a substantial shareholding with a trust which is assumed to be loyal to the concept of government control. To buttress his view that government control in BPCL should not be disturbed, Naik has pointed out that the security concerns, which he has been putting across as justification for holding on to BPCL in the state sector, has actually accentuated.

He has pointed out that war clouds in West Asia had darkened and problems with Pakistan had not been solved. BPCL plays a key role in any oil security plan that the government draws up. If both HPCL, which is being sold off to a strategic bidder, and BPCL were to go out of government control, then 51 per cent of the country's oil terminal and depot capacity goes out of state control. Privatised companies are unlikely to incur the huge carrying cost of about Rs 5,000 crore a year in keeping a 15 days' strategic reserve.

The CCD meeting, which is to decide on the fate of BPCL shareholding, will also decide the fate of disinvestment in Balmer Lawrie, Hindustan Organics, Hindustan Insecticides and Nepa.

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