BPCL Privatisation Stuck As Bidders Question Unofficial Price Control

As India plans to sell a majority stake in Bharat Petroleum Corp. Ltd., bidders to take control of the country’s second-biggest state-run refiner have raised queries over freedom to pass on higher crude prices to retail buyers, according to two government officials.

Concerns over overall cost of the deal, India's energy transition, changes in policies on downstream and upstream investments, and oil post-war were also raised in closed-door meetings with central government’s transaction advisers, one of the officials quoted above told BloombergQuint on the condition of anonymity as the matter is confidential.

Retail prices of petrol were deregulated in 2010 and diesel in 2014, allowing them to move in line with the market. In some metros, it was decided to revise rates daily to accurately reflect international prices. But state-run oil marketing companies often refrain from revising prices ahead of polls, making it difficult for private peers to increase prices as crude rises.

State-run retailers froze fuel prices for 137 days starting November after election campaigns in Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur began. During that period, crude surged 40% to hit a 14-year high of $139.13 a barrel as Russia invaded Ukraine. After polls concluded last month, petrol and diesel have turned costlier by close to Rs 11 a litre after a series of small hikes.

In May 2018, retail fuel prices were held for 19 days ahead of Karnataka elections. OMCs froze rates for 74 days in a row starting January 2017 when elections in Punjab, Goa, Uttarakhand, Uttar Pradesh, and Manipur were due.

According to an official quoted above, transaction advisers have on multiple occasions reported that bidders have been seeking clarity over pricing of fuel as it largely determines their revenue calculations.

BloombergQuint’s emailed queries to the Department of Investment and Public Asset Management remained unanswered.

Another concern raised by the bidders is on climate change and energy transition.

Private firms want an ESG rating and details on how environmentally sustainable BPCL is. One of the reasons why the refiner’s divestment process has suffered is because transaction advisers have found it difficult to convince bidders on this issue, one of the officials quoted above said. An ESG rating estimates exposure to long-term environmental, social, and governance risks.

In 2019, Finance Minister Nirmala Sitharaman announced a sale of the government’s 52.98% stake in BPCL. The deadline to submit expression of interest has been deferred twice due to the Covid-19 pandemic. Last month, Bhagwat Karad, minister of state for finance, told the Rajya Sabha that BPCL’s divestment is in its due-diligence stage.

Due diligence, according to one official quoted above, will lead to financial bidding but bidders aren’t ready yet. The divestment process is not moving forward the way the government wanted. No decision has been taken yet on revising the entire process.

So far three suitors—Vedanta Group, Apollo Global Management Inc. and I Squared Capital Advisors—have expressed interest in buying the government’s stake in BPCL, Bloomberg and PTI have reported. The government, however, hasn’t officially disclosed names of any of the bidders yet.

BPCL, according to its website, runs 18,622 fuel stations across the country, and has 6,169 LPG distributors. The ‘Maharatna’ company has a combined refining capacity of more than 35 million metric tonnes through refineries in Mumbai, Kochi, and Bina. The Ministry of Petroleum and Natural Gas’ website showed that BPCL has 26 assets across Russia, Brazil, Mozambique, the UAE, Indonesia, Australia and Israel.