Dec 27, 1999|
Government may dump Sengupta report on oil sector recast
The government may dump all the suggestions made by the Nitish Sengupta committee on a recast of the oil sector.
The committee had suggested that the government’s stake of 55% in Cochin Refineries (CRL) be sold to Bharat Petroleum Corporation (BPCL) and 51% in Madras Refineries (MRL) be sold to Indian Oil Corporation (IOC).
Another suggestion was that 33% of the 59% government stake in Indo Burma Petroleum (IBP) be sold to BPCL. Besides, the government’s entire holding in Bongaigaon Refineries and Petrochemicals should be sold to IOC.
The most significant suggestion of the Sengupta committee was the eventual merger of Hindustan Petroleum (HPCL) with BPCL.
The finance ministry was not happy because the lack of open bidding in Sengupta suggestions could result in lower realisation for the government stake. Further, some the existing players in the industry were also not comfortable with the suggestions made by the committee. Notably, the suggestion that did not go down well were the takeover of MRL by IOC, the lack of opportunity for Reliance, which is building the largest stand–alone refinery and HPCL not being given a chance to bid for IBP. BPCL actually buys up the entire refining output of MRL while the committee has recommended that MRL go to IOC. Similarly, HPCL was upset at not being considered for the takeover of IBP since it does not have a retail network in the North–East. Reliance has expressed interest in taking over BPCL, HPCL and IBP since it does not have a retail network to support its 27 million tonne refinery.
What the government is now proposing is a process of open bidding, which would fetch the best price for its stake in the stand–alone refiners. What is not clear is whether this process of bidding would include the Indian private companies and the foreign majors (which includes the likes of Exxon–Mobil and Shell) or will it be restricted only to the Indian public sector units.
BPCL and HPCL have been rated as buys primarily due to the possibility of privatisation and the expected alignments between them and the stand–alone refiners. The expected dumping of Sengupta committee recommendations would only delay these measures further.
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