Foreign Firms Allowed To Buy 100% Of Bharat Petroleum; Govt Modifies Rules For Easy FDI

To facilitate the strategic disinvestment of Bharat Petroleum Corporation Limited (BPCL), the Finance Ministry has added a new provision to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.

How Does This Help?

According to this development on Thursday, the government has permitted 100 percent foreign investment under the automatic route in oil and gas PSUs which have received in-principle approval for strategic disinvestment.

This move is to smoothen the privatization of India’s second-biggest oil refiner Bharat Petroleum Corp Ltd (BPCL).

Earlier to this, the government has decided to privatize BPCL by selling its entire 52.98 percent stake in the company.

What Does This New Clause Say?

A new clause has been added to the FDI policy for the oil and natural gas sector, according to a press note of the Department for Promotion of Industry and Internal Trade (DPIIT).

According to this, “Foreign investment up to 100 percent under the automatic route is allowed in case an ‘in-principle’ approval for strategic disinvestment of a PSU has been granted by the government,”.

Last week, the Union Cabinet has taken the decision regarding the same.

It is noteworthy here that the two out of the three companies who have put in an initial expression of interest (EoI) for buying out the government’s entire 52.98 percent stake in BPCL are foreign entities.

Although, the FDI limit in PSU-promoted oil refineries will continue at 49 percent a limit that was set in March 2008.

Presently, the government is selling the stake in only BPCL. 

Apart from this, the nation’s largest, Indian Oil Corporation (IOC), is the only other oil refining and marketing company under direct government control.

Coming to other players like Hindustan Petroleum Corporation Ltd (HPCL), it is now a subsidiary of state-owned Oil and Natural Gas Corporation (ONGC).

Proceeding In BPCL Privatization

Prior to this, During March 2008, the government had raised the FDI limit in oil refineries promoted by public sector companies from 26 percent to 49 percent.

According to the takeover rules, the acquiring firm that will have the government’s 52.98 percent stake in BPCL will also have to make an open offer to buy an additional 26 percent stake from other stakeholders at the same price.

So far, Mining-to-oil conglomerate Vedanta and US-based private equity firms Apollo Global and I Squared Capital’s arm Think Gas are showing interest in buying the government’s stake in BPCL.

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