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'Public offer makes PSUs vulnerable to creeping acquisitions'

Favouring strategic sale of Bharat Petroleum and Hindustan Petroleum, the divestment ministry has argued that public offer would make the two public sector oil units vulnerable to creeping acquisition, without the government getting control premium.

"Through the public offer route, the government ultimately loses control to a private promoter through creeping acquisition, without getting the control premium. In Poland, this is exactly what happened," informed sources said.

Citing strategic sales in Argentina, Brazil, Philippines, Turkey, Poland, Germany and Egypt, sources said strategic sales result in very high prices to the government.

On Petroleum Minister Ram Naik's insistence on allowing BPCL and HPCL to raise resources through IPO for funding their new projects, sources said refinery margins were under severe stress due to excess refining capacity in the country.

Against demand of 98 million tonnes, India already has 114.5 million tonnes of refining capacity.

BPCL is constructing a new 6 million tonnes refinery at Bina at the cost of Rs 6,000 crore (Rs 60 billion), while HPCL has begun work on 9 million tonnes Bathinda refinery, costing Rs 9,500 crore (Rs 95 billion).

"Brown field expansion project costs per million tones is almost half of the cost for green field projects. Therefore, it makes sense to expand existing capacity rather than add new capacity," sources said.

The said that any decision of adding new greenfield capacity should be logically left to the strategic partner who takes over HPCL and BPCL.

Sources said strategic sale followed by an initial public offering would get Government a lower price. "It does not make any sense to raise Rs 1,000 crore (Rs 10 billion) -- through the proposed IPO of 50 million shares) when at the end of it Government is going to disinvest BPCL."

Stating that in an IPO, the government would always get a much lower price, they said the debt-equity ratio of BPCL clearly indicated room for leveraging debt.

On the petroleum ministry's argument that oil sector security is at stake, sources said "security cannot be a concern in retail having opened up exploration and production and refining to the private sector."

"Even so, the Petroleum Regulatory Bill has strict provisions for take over of the companies by the government in national emergencies like war," they said, adding that when about three-fourth of the crude is met through imports, the security concerns really lay there.

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