The much touted Bharat Petroleum Corporation Ltd. sale is yet to see the light of the day. Government Planners, Economists and Pundits having tried all tricks of the trade without much visible success. The denizens at Niti Ayog should be pardoned the lapse on minority share holders’ rights matter which only recently has been, reportedly, taken up with SEBI. I am sure, it’s much to the consternation of SEBI too. The whole issue of the government having to visibly seek and obtain a waiver on the rights of minority shareholders will certainly not make for good optics. It may be seen by some as a climb down by SEBI from its exalted position of the vanguard for shareholders’ confidence. So the government advisors and economists have now brought out of the bag, another genie: 100% FDI.
A recent media report claims that the government, if all goes well, will allow 100% FDI in state owned oil refiners to facilitate privatization of Bharat Petroleum Corporation Ltd. Despite the stupendously heartwarming work done during the two Phases of COVID pandemic, right from providing PPEs to Oxygen for medical use while posting a sizeable profit of Rs 19,041.67 crore in the financial year ended March 31, 2021 (a 610 per cent increase over last year) the PSU is up for grabs. Should this be seen as a sign of desperation or sheer cussedness on part of government planners. The attempt to merely match two sides of a budget by selling the proverbial family silver ignoring all prudence and overall value of this fine people asset, is debate able. For the powers to be, anything other than full divestment even if it brings below par returns; mere coinage in an a priori decision which cannot be changed. Covid imperatives do not seem to impact Indian planners despite the whole world looking at the new normal with fresh vision.
If one is to examine this 100% FDI route; we can see that it does not have a glorious past in India. Not much foreign investment has been done in India’s refining sector though existing laws permit for various percentages of investment in the refining sector. The proposed 44 bn USD West Coast Refinery did see Saudia Aramco show some interest but many feel the West Coast Refinery is itself a question mark today. The Refining Business is no longer what it used to be. Faced with clouds of environment issues, alternate sources of energy and renewables the scene of Oil Refining in India is quite muddled. Not many will like to invest in Oil Refining in a country where the Hon’ble Minister for Road Transport & Highways and the Minister of Micro, Small and Medium Enterprises has announced that there will be 100% electric mobility by year 2030. It’s a different matter altogether that Auto LPG, CNG business have their own woes and even after CNG introduction in 1993 one can see long queues at filling stations even today. Also, god help the consumers if the recent long list of woes brought upon by the aftermath of pandemic were to visit the Oil & Gas sector. Remember this sector ensured the availability of Petrol & Diesel even when many other utilities ran out. Of course, tongue and cheek, one can say, look it was business as usual for Oil & Gas Companies. If this is used to claim that Oil Refining will continue to rule in India it will be like the devil citing scriptures and not cut much ice with prospective buyers. Thus, mere investment in Oil Refining cannot make sound business sense to most Foreign Investors unless such deals were sweetened with other goodies. That’s where the most vital issue of Marketing of Oil & Gas as a business comes in. It will be S & D, Fuel Sales to Consumers, Retailing etc which will be most attractive of what may well be the last stages of fossil fuel business in the subcontinent.
Many of us are aware that Refining Business has several complex issues; running intricate technological behemoths, fixed returns, vagaries of inventory carrying costs, shifting refinery margins etc. Marketing on the other hand is where the moolah really is. India has one of the most attractive captive market for OIL & Gas products after China. Here these products are basically sold as commodities to consumers and retail buyers. There is hardly any cost incurred in differentiation or advertising; products almost get sold on their own, depending on simple demand and supply rules. If the 100% FDI in Refining is agreed upon then Marketing is the next frontier to be crossed. The glass ceiling for companies like BP which have been waiting patiently on the sidelines for entry into Oil & Gas Marketing Business will crack and the rest will be the proverbial history. The existing PSUs and Private players will have a tough time competing with the Multinationals who have deep pockets and the era of seven sisters may well return to India. It’s sheer truth that most industries love a situation of monopoly where they can dictate terms and earn bounties. We have seen how a pandemic can bring any nation, rich or poor, to its knees. Lo behold the day when lack of medical oxygen like crisis comes to pass in the Oil & Gas Sector in India.
By : Sidhartha Mukherjee. The views expressed in this article are personal and academic in nature
