| Caught in the loop
New Delhi, Sept. 17: The Supreme Court verdict stalling the disinvestment of blue-chip public sector oil companies comes as a major setback for front-runners like Reliance Industries and Shell and a major embarassment for disinvestment minister Arun Shourie.
Reliance Industries and Shell have been eyeing Hindustan Petroleum Corporation’s (HPCL) 4,500 petrol filling stations and 2,000 LPG retail outlets to get an easy break into the lucrative business of marketing petro goods. HPCL registered an impressive net profit of Rs 1,537 crore for the financial year ended March 31, 2003.
The public sector company has the advantage of owningpetrol pumps in the prime areas of major cities such as Delhi, Mumbai, Calcutta and Chennai. These pumps are doing brisk business and it is not possible to set up any new outlets in these hot spots due to space shortage.
Setting up a chain of petrol pumps also requires infrastructure such as oil depots and pipelines which take a long time to set up. The taking over of a company cuts the gestation lag to zero.
Similarly, HPCL and Bharat Petroleum Corporation (BPCL) also had a lead start over Indian Oil (IOC) as these companies were formed after Shell and Esso were nationalised in the 1970s.
Senior oil sector officials point out that in the beginning even IOC had the disadvantage of not having pumps in high-selling areas.
IOC is now 40 years old and it was only with growing urbanisation over a long period that these filling stations, which were initially on the outskirts of cities, have turned into high-selling areas.
While bidding for IBP, Indian Oil had quoted a price that was much higher than that of Reliance Industries because it had calculated that at least three years would be required to set up the retail network of 1,500 pumps owned by the company. Besides these locations would no longer be available.
Shourie’s rush to sell HPCL, even though the case was pending in the Supreme Court, has turned out to be a faux pas. To add to his discomfort, the petroleum ministry had clearly told him that the due diligence exercise that he was launching should be put on hold until the apex court judgement came through.
However, the disinvestment minister went ahead on the assumption that the Supreme Court would give a verdict in favour of the selloff.
He had adopted a similar approach during the sale of Balco when he announced that the court would throw out the case against the sale of the aluminium company.
Shourie now faces an uphill task with the Supreme Court ruling that the approval of Parliament is necessary before the oil companies can be put on sale.
However, such an approval is unlikely as the ruling NDA alliance is in a minority in the Rajya Sabha. Even in the Lok Sabha, its ability to muster a majority is in doubt as its own partners, the Shiv Sena and the Samta Party, are against the privatisation of oil firms. And with the elections drawing closer, the issue of selling profit making companies, while clinging on to the loss-making ones, could become a political hot potato.