 Hello and welcome to NewsClick. I am Paranjoy Gohar Thakurtha. The government of India is desperately short of money and it needs money quickly. One of the ways in which this government intends raising this money is by divestment, disinvestment, selling the shares of public sector undertakings. And two of the major companies the government has in mind are Air India and Bharat Petroleum Corporation Limited. In this episode, I discuss the issues relating to divestment of the government's stake in Bharat Petroleum with Prabir Purokaistar, Editor-in-Chief of NewsClick. Prabir BPCL is the shining jewel, the proverbial Maharatna is a highly profitable enterprise. And the government you think will have, it will be smooth sailing to sell the government, entire stake of the government which is a little over 53% in this company because the group of secretaries have gone ahead and given permission. This is the 30th of September and this is under the new department in the Ministry of Finance called DIPM, Deepam, Department of Investment and Public Asset Management. Do you think it will be smooth sailing? Well, let's start with the acronym DEPAM. We could also call it the Department of Disinvestment and Public Asset Mismanagement because what they're doing is bundling Air India which is a loss making company which has become a loss making company due to various reasons which we can discuss another day. But along with it, what it has done is to bundle a company which is not only making profits, it's making huge amount of profits. And in fact, if you see the share price, the book value of the share which was about 19 rupees per share, on that they have made last year what you said 7000 crore of dividend payment, more than 7000 crore of dividend payment but it is 190% of the share value. The figures for 2018-19 financial year, the company's turnover was around 3.4 lakh crores and the net profit was over 7000 crores, 7132 crores. Which means it has paid off the bank loans which are from the public sector banks. It has made the payment it is supposed to make and also paid taxes which would have also been of the roughly of the order of 7000 to 10,000 crores if not more. So, if you look at all of this, forget about its value to the X checker which comes out in different forms but purely in terms of what is commonly raised against the public sector that this is always loss making, it's inefficient and so on. This is by that account a highly profitable public sector undertaking paying the government much more than the investment it has ever made in the company. But I would like to also look at it from another point of view that the D-Pam or D-Pam I prefer to still call it D-Pam, D-Pam's basic offer is for the entire shareholding 53% because 25% is owned by the public in different forms but also probably owned by government investment institutions like life insurance company and so on. And other oil companies as well. Other oil companies as well. So, in order to give it to completely private hands it has to sell the entire 53% of it of the share that it holds. So, who is it intended for? One minute, one minute. Before we look at who is it intended for, who are the likely buyers? Let's take a few steps back. Let's go back into history a little bit because if you recall during Mr. Atal Bihari Vajpayee's time in 2002 there was a movement to also sell Bharat Petroleum but the government could not because there was an act of parliament when what was previously Burma Shell had been nationalized in 1976. Now that act had to be amended. Now that act has indeed been repealed in 2016 so the road has been cleared but let's go back in history. Burma Shell which was set up in the 20s was a joint venture between Royal Dutch Shell, Burma Oil and Asiatic Petroleum India. It was a major, an oil major and if you look back in time it played a very, very crikey role in both refining and distribution and I'll tell you more about where it is today. So, if you look back in time this was in fact together with Caltex which became HPCL, Indoburma Petroleum this was really during Indira Gandhi's time, in fact the peak of the emergency when BPCL became what it is. I think it was privatized, it was nationalized just before that but I could be wrong. 1976. 1976. Now let's look at what the Indian oil sector was before. Indian oil sector did have oil India limited before that but both Caltex and Shell were major players in the Indian market if you remember when the children, you would see their billboards all over the country. Wherever you go you had Caltex, oil pumps or you had Burma Shell, oil pumps. And you had SO, Standard Oil. Standard Oil. So these were So called Seven Sisters that used to These were really the oil majors which in fact are the oil monopolies as you said Seven Sisters, Rockefeller's Oil Monopolies and the Anglo-Dutch company which let's not forget was the other big global player particularly as Britain's empire was quite large before the Second World War and it is the Anglo-Dutch which Mossadegh had nationalized and paid the price with his subsequent debt being deposed and being deposed and spending the rest of his life essentially in house arrest. So Mrs. Gandhi's taking over of these oil companies was a major landmark in the fact that at least irrespective of what happened during emergency which we all know and are critical of but at least it also marked a step towards establishing that she was trying to do something quote unquote for the nation and she had nationalist aims as well. But it is a continuation as I said from the bank nationalization and other steps that she had taken after coming into power. Insurance, coal, steel and it was part of that same set of things. It ended with this oil amendment what you're talking about that is a part of a parliamentary act by which it took over the assets and the BPCL also has assets not only in refining as one part but also in distribution. Correct. So in fact fast forward to the present the Maharatna Maharatna called Bharat Petroleum Corporation is today the second largest oil marketing company in the country. It operates four refineries, Mumbai. You can see those flares when you go travel in Mumbai, Kochi in Kerala, Bina in Madhya Pradesh and Numaligar in Assam. We'll come to Numaligar a little later but it has today the capacity to refine over 38 million tons of crude more importantly and this what probably makes its assets so attractive for a private buyer it operates over 15,000 petrol pumps across the country and has over 6,000 cooking gas or liquefied petroleum gas distributors distributed ships. So would you say that these are the assets which the private players who are less seriously eyeing the government's 53.29% taken BPCL are looking at? If we take the market value of this company which has two parts to it one is the refining part, the other is the distribution part. Let's compare the refining capacity and its value to what would be the value of SR oil which is taken over by Roseneft and Trafigura consortium. They had taken it over for something like 12.9 billion dollars and it was 20 million tons of capacity against 38 million ton of capacity of BPCL. So BPCL is about twice the size of SR oil. If you club with that the distribution network you've talked about and will come to the value of the distribution network in a minute then that network would probably double the value of the company. Now if you take that you're really looking at just the refinery alone the four refineries alone to net about 25 to 30 million dollars and if you add to that the distribution side you're probably talking about double that value and the 53% shares that are there. This is really you're also transferring majority of the shares so you're really transferring ownership completely. I'll just add a few facts. Right now the three major public sector oil marketing companies Indian Oil, Bharat Petroleum and Hindustan Petroleum together have over three fourths of all the marketing happens and gradually now Reliance, SR and now it's open now to the foreign companies they are now entering. So once BPCL is also no longer in the public sector it could be that the public sector's share of oil marketing would come down fairly drastically from about three fourths to perhaps around half. So we are talking of something like 25% of the distribution being with BPCL or probably about 30% of the distribution being with BPCL today. So we really talked about to my mind that when you talk about the refining capacity being worth 25 to 30 billion dollars you're really doubling roughly the cost the total value in the market for this company would be 50 billion dollars and at 53% because you're transferring ownership roughly it should be between 25 to 30 billion dollars is what a strategic sale of 53% should really get the government. Okay. This is the amount that you'd get but what does the company which buys it gets which you rightly said is not only the refining capacity but the distribution. Absolutely and that is possibly perhaps in certain respects quite a lucrative part of the whole deal. It's not only the lucrative part it is a strategic issue because both SR and reliance don't have the distribution capacity but they have refining capacity. Correct. So therefore the distribution would be attractive to Roseneft led consortium which bought SR oil and reliance and looking at the kind of sweetheart relationship with the government of India that they have. Since you've already come to this point when you look at the major players who are likely to be bidding for their government's 53.29% stake in Bharat petroleum there are about five names which make this. First obviously reliance industry is limited then comes British petroleum BP. Though BP has a tie up also with reliance for the gas part of it in Krishna Godavari then you have Kuwait petroleum. You also have Malaysia's Petronas but there's also a big plan that is Saudis Aramco. Now Shell you must remember has a stake in Aramco and Aramco and reliance are I mean according to reliance Aramco will be buying a major stake in reliance industries. Now these are going to be the major players. So it's not just reliance but the big multinational including Shell and Aramco who are looking at Bharat petroleum assets. I would say that Aramco would partner if it does come in through with reliance in this venture because reliance has a huge requirement of capital as we know that it is essentially underwriting the telecom part of its empire. It has other investments it has made or is making. It has a huge overhang of debts and without the Aramco 20% I don't think reliance is going to be able to put in a big bid. There are some minor hitches in the whole thing but most people believe they can be sorted out. If you recall the Assam Accord as part of the Assam Accord when Rajiv Gandhi was the prime minister Numaligarh refinery was taken over by BPCL. They bought over 61% of the shares but the Assam government has a stake I think about 12.35% and Oil India Limited also has a stake in Numaligarh more than that. So you think these things are minor and they will be sorted out. Numaligarh is a small refinery to the other ones. So in fact it is political significance as you have already said Assam Accords Assam but that is true for the North East as a whole that BPCL has some stake because of the Numaligarh refinery for the North East India as well. But leaving that out that can be as you said it can be sorted out it's a minor hitch. The big issue is if reliance is a bidder I would club Aramco along with it. I do not think it's going to make an independent bid. You know that way even Mozambique LNG has a partnership with the Numaligarh refinery. So these are issues I think that can really be sorted out. Yes Oil India owns 26% and Assam government owns 12.3% in Numaligarh. But wait the employees are bound to resist it. 12,500 employees off? Roughly over to 12,000 employees. But the government also seems to be in one great hurry to go ahead with this whole deal because it desperately needs this money before the end of the financial year which doesn't leave it very much time. Do you think they'll be able to go ahead? Well I'm not going to look at the crystal ball on that count because what big players will do in terms of bids are not known. I do not think a bid of the size that everybody has to make can be sorted out in a matter of months. So I think we are talking about 4 to 6 months minimum if not longer to sort out the legalities of this sort out how as you said the Numaligarh issue has to be handled and also get the players do their due diligence before they actually can make bids and sort this process out. Okay we'll have to wait and watch. But even if they get some kind of bidding process on and get some figures they will probably put it in the budget and say you know some what is it called? Book balancing can be done or shall we say creative accounting can be done by which they can include the sale in the budget to show that their deficit is lower because if you see the whole game is an attempt to show low deficit by transferring all the deficits as well as all the loans onto the books of the public sector. Only problem is if you continue to sell the public sector how do you continue to do this? That's an open question the government has to answer for the future. Are you selling the family silver to pay for the grocery bills or to pay the butler the famous statement? Yes sir this I would say is not the silver this is the gold or the diamonds if you like. Oil India and BPCL are really gold even today and the proof that the Indian public sector has made huge profits over the lifetime of its existence. The only thing is when we took look at we look at only those which have failed or which have not made profits due to various reasons we do not look at the huge profits they have made for 50, 60, 70 years of their lives. Okay thank you so much Prabir for giving us your views and we'll have to wait and watch how quickly the government will be able to sell India's second largest oil marketing company and that will reduce the role of the government sector the public sector in oil distribution and it will come down from around three fourths to around half and time will tell who will be able to buy a majority stake in this Maharatna. Thank you for being with us keep watching NewsClean.