The disinvestment and petroleum ministries have completed their groundwork for a slugfest at the September 7 meeting of the Cabinet Committee on Disinvestment. While the petroleum ministry, having failed to get an appointment from the Prime Minister to present its case, would pitch for an Initial Public Offer (IPO) in Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), the divestment ministry has prepared a point-by-point rebuttal on each count.
Strongly opposing the need for IPOs to fund the green-field refineries of the two companies, the divestment ministry says that the additional capacity would create a glut in the market and a public float would render HPCL and BPCL vulnerable to creeping acquisition. BPCL has already pumped in nearly Rs 300 crore in its 6 million metric tonnes per annum (MMTPA) Central India Refinery at Bina and while HPCL is executing a 9 MMTPA Punjab Refinery at Bhatinda.
"Against a demand of 98 MMTPA, the country already has installed capacity of 114.5 million tonnes. By the end of the tenth plan, the demand would at best rise to 135 MMTPA, but capacity would have grown to 197 MMTPA. The Planning Commission has already stated that the Bina refinery was financially and economically unviable while the Bhatinda refinery could be viable only if its cost was brought down by 10 per cent," a disinvestment official said.
Pointing out that refining margins were under tremendous strain and it made little sense to go in for green-field projects at this stage, the official said brown-field or expansion projects could be completed at half the cost of a new refinery. At any rate, any expansion decision should be left to the future management of the companies, he said.
The divestment ministry has questioned the rationale of allowing public sector companies to bid for other PSUs. "It reduces valuation as private investors, especially foreign companies, lose faith in the sell-off process. If PSUs bid for other government-owned companies, it is seen as a government ploy to consolidate its position and valuations go down," the official said.
Rubbishing the contention that the companies had strategic importance, the ministry has said that the Petroleum Regulatory Bill provides for taking over distribution companies in the event of a national emergency and the Hydrocarbon Vision 2025 had clearly identified privatisation of retail as "an area for policy thrust".
"If there is any security concern in the oil sector, it should be in crude procurement as we are importing two thirds of our annual requirement. How can there be any security issue in running petrol pumps," he said.
