With the Centre making progress in the process of privatisation of fuel retailer-cum-refiner BPCL, the petroleum ministry will soon seek Cabinet nod for a process to transfer subsidised LPG customers from the company to other state-run retailers Indian Oil and Hindustan Petroleum Corporation to remove a potential irritant for the buyer. The transfer process will be completed in 3-5 years. State-run fuel retailers often do not receive subsidies on time, many a time, the release of subsidy is delayed for years. After the decontrol of prices of auto fuels, the subsidies are now on account of cooking gas, kerosene and LPG connection to the poor under the Ujjwala Yojana.
At FY20 end, such unpaid/delayed dues cumulatively stood at Rs 27,000 crore, roughly split between IOC, BPCL and HPCL in the ratio of 50:25:25. Once the company goes to private hands, such an arrangement will likely be resisted by the new owners. According to BPCL’s annual report for FY20, the company had unpaid/delayed dues of about Rs 425 crore compared with Rs 883 crore for FY19.
“As advised by the ministry of petroleum & natural gas, the corporation has accounted compensation towards sharing of under-recoveries on sale of sensitive petroleum products as subsidy from the government amounting to Rs 255.31 crore (previous year Rs 882.65 crore) and the same is accounted as revenue from operations. During 2019-20, an amount of Rs 169.69 crore recognised in the revenue from operations towards recoverable additional uncompensated costs against LPG sales,” BPCL said in the annual report.
According to CNBC TV18, the oil ministry has decided to keep BPCL as ‘divested entity’ for 3-5 years to help in continuation of LPG subsidy post stake sale. Vedanta has formally evinced interest for the Centre’s 52.98% stake in BPCL, which is on the block. While the government had confirmed receipt of “multiple expressions of interests” from domestic and foreign firms for the controlling stake in the oil major by the November 16 deadline, Vedanta is the first potential bidder to confirm it’s in the fray.
BPCL owns and operates four refineries in India and 15% share of the country’s 250 MT refining capacity; it also has 17,000-strong retail fuel outlet network in the country, and a over quarter of the retail market share. Its privatisation is seen as critical for the government. The Centre is now making a determined effort to sell its stake in BPCL, which was worth around Rs 44,000 crore at Wednesday’s closing price on the BSE.
The government’s stake in BPCL was worth about Rs 60,000 crore in November 2019, around the time the stake sale proposal was approved by the Union Cabinet. However, the actual receipts will depend on valuation and consideration of a premium (ONGC had bought the Centre’s stake in HPCL in FY18 at a premium of 14% to the stock’s price). As per Sebi takeover code rules, an acquirer company has obligation to launch a mandatory open offer for an additional 26% stake in the target company.