By R. Sasankan

The BPCL privatisation plan has stuttered from the start. In November last year, the Union cabinet decided to put its 52.98 per cent stake in downstream petroleum giant. But investor interest appears to have cooled in the heat and dust of the severe global economic slowdown, precipitating a situation where the selloff has virtually stalled. The deadline for submission of the Expressions of Interest (EoI) has been extended for the fourth time to November 16 from the earlier date of September 30. On all previous occasions, the deadline was extended by three months. This time for some inexplicable reason the extension has been by two months and 16 days -- perhaps more in hope than conviction that an economic recovery is round the corner and overseas investors will work up their enthusiasm for BPCL's petroleum refinery and retailing business.

Finance minister Nirmala Sitharaman is clearly in a hurry. BPCL represents the cornerstone of the disinvestment programme and the government is keen to flog the asset before March next year so that the proceeds from the sale can come in and help diminish the surging fiscal deficit which some estimates put at over 7 per cent of GDP this year.

The finance ministry oversees the disinvestment programme and a separate wing, called the Department of Investment and Public Asset Management (DIPAM), handles such assignments. In one sense, this is an inherent flaw within the system. The Modi government is signalling its desperation to close the BPCL deal quickly -- and that is never a good idea to ensure proper price discovery for such a prized asset.

 Petroleum is a specialised area where foreign investors haven’t entered in a significant manner till now. So, the right policy would have been to involve the petroleum ministry to work out the strategy. The decision makers must be able to react swiftly to the fast-paced developments in the petroleum industry and that calls for deep knowledge about the way the industry works. But all things said, it is clear that a consultant -- no matter how brilliant he may be -- cannot substitute a politician with sound common sense.

This is not the first time that the government has mulled over proposals to privatise BPCL and HPCL. The idea was first mooted at the policy level by an energy expert within the government more than one and a half decades ago. This plan was predicated on the belief that India should open up its energy markets to full competition. He wanted foreign oil majors to move in via BPCL and HPCL and help establish a fully competitive upstream and downstream energy market. But political considerations scuttled the plan at that time; sadly, we still do not have the sagacity in our political leaders even today to consider such a proposal even at this stage.

So, what was the sudden provocation for privatising BPCL now? It could not have been without the total backing of Prime Minister Narendra Modi who would not normally be bothered too much about the fiscal deficit which ought to be handled at Ms Sitharaman’s level. While announcing the government decision to privatise BPCL, the petroleum minister made it abundantly clear that the government favoured the idea of handing over the company to an international oil major so that competition could be injected into India’s petroleum sector.

Official circles confirmed that the government had indicated for a foreign oil major and was clearly leaning towards Aramco of Saudi Arabia. But the winner will have to come through the normal process of competitive bidding that would throw up an attractive price.

Geopolitical and diplomatic initiatives that brought India close to Saudi Arabia and UAE played a crucial role in deepening India’s preference for Aramco and that remains unchanged. Aramco’s investment proposal for a mega refinery in the state of Maharashtra and its officially announced interest to enter India’s petroleum market were also part of this strategy. The Saudi crown prince Mohammad bin Salman disclosed during his visit to India his country’s plan to invest close to $ 100 billion in India over the next two years.

The pandemic has thrown the entire plan to disarray; Covid-19 has hit Aramco and all other global oil giants hard. BPCL cannot escape the crippling consequences. When the Covid situation has been tamed, the government can consider restarting the process again. Till then, it would be wise to defer the privatisation plan instead of mindlessly extending the deadline.

A word of caution to finance minister Ms Sitharaman: in the contemporary reality of global energy, it is highly unlikely that the government will get a decent value for the assets that BPCL has on the ground. Another reality is that no matter which party is in power in New Delhi, India does not wish to establish an independently-regulated competitive energy market. At the same time, no foreign player will want to come in without necessary regulatory changes.

“If our market does not attract a foreign player even today, it is very unlikely that he would pay a fair value. And if our market is seen as attractive, then making necessary regulatory changes will be the key to attracting foreign investment in the sector. The current market structure and market reality is a dampener for any investor," said an acknowledged energy expert.