As per the reports, the supermajors BP Plc and Total of France may not participate in the bidding for the acquisition of Bharat Petroleum Corp Ltd (BPCL) due to the inflexible locations of oil refineries along with the tough labour laws against access to world’s fastest-growing fuel market.
Why Would This Happen?
As we know about the privatization of India’s third-biggest oil refiner and second-largest fuel retailer where government’s entire 52.98 per cent stake is available for the bidding.
As on Friday, the list of bidders includes Saudi Arabian Oil Company (Saudi Aramco), Russian energy giant Rosneft or its affiliates and billionaire Mukesh Ambani’s oil-to-telecom conglomerate Reliance Industries Ltd (RIL).
At current market price, a top consideration for investors is the USD 10 billion or around Rs 75,000 crore price tag and after including the requirement to make an open offer for an additional 26 percent stake from shareholders post buying out of the government share, according to sources.
This stake will provide ownership of BPCL’s three refineries at Mumbai, Kochi in Kerala and Bina in Madhya Pradesh and also 16,309 petrol pumps, 6,113 LPG distributor agencies and also more than a fifth of 256 aviation fuel stations in the country.
The sources said, “But the company’s refineries are at inflexible locations particularly the ones at Mumbai and Kochi where getting additional land for expansion or petrochemical unit additions would be near to impossible,”.
What Are The Other Obstacles?
Apart from the inflexible location, India’s tough labour laws pose another challenge.
As we all are aware of any foreign or private operator, they would be interested in operating the company on a leaner workforce instead of a 12,000 strong employee base.
Sources say, “Shedding excess workers will be a big challenge,”.
The BPCL’s network of petrol pump seems to be a lucrative bait for investors, according to another source.
Once the existing lease for outlets expires or a change in land use is allowed, the operators of petrol pumps can use the sites for other businesses that give a better return.
The Potential Bidders For BPCL
In case of BP and Total, BPCL does not make much sense as they have made a conscious shift towards cleaner energy sources such as gas and renewables and declined to add more refineries.
BP and Total spokespersons did not reply to emails sent for comments.
While BPCL seems to be a good asset for Rosneft, who affiliate Nayara Energy already has a 20 million tonnes a year refinery and over 5,700 petrol pumps.
Further, it could help the company immediately and also raise its market share to a fifth of total refining capacity in the country and command nearly one-fourth of retail fuel network.
Apart from these, Saudi Aramco, Reliance and ExxonMobile are also being talked as potential bidders.
Moreover, the bidding would be a two-stage process where qualified bidders in the first EoI phase being asked to make a financial bid in the second round.
Also, the Public sector undertakings (PSUs) are not eligible to participate in the privatisation.
In today’s trading session, BPCL stock seen a deep of 7.63% In BSE.
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