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Government along with PSUs make sizeable contribution towards Capex

-Market Perfidies and Manna from Heaven. -BPCL from a 52 week high of Rs 503.00 to Rs 324.25 wiped away a considerable chunk of its market cap. -Creativity and paradigm changing pathways are not at a premium. This is the story of every PSU Board.

(Sidhartha Mukherjee)

-Market Perfidies and Manna from Heaven.The recent announcement of the withdrawal of sale of BPCL is a tale of first class goof up. The Department of Investment and Public Asset Management (Dipam) indeed shed a very feeble light when it disclosed:  “The multiple covid waves and geopolitical conditions affected multiple industries globally, particularly the oil and gas industry owing to prevailing conditions in the global energy market, the majority of qualified interested parties (QIPs) have expressed their inability to continue in the current process of disinvestment of BPCL”. The resultant sharp fall in share prices of BPCL from a 52 week high of Rs 503.00 to Rs 324.25 wiped away a considerable chunk of its market cap.  In corridors of power most would deny that the timing of announcement or the announcement itself merit any attention. Maybe true, after all if  one is bent on  selling family jewels some loose settings hardly matter. But surely there is some egg on the face of die hard adherents of rampant privatization of PSUs in India. . The affaire de divestiture may not deserve even a cursory look from the CAG but it has its portends.  Of course most of us should know that in matters of high finance there is often something more than meets the eye. Rhetorically though, the  failure has come at a most inopportune moment. The energy sector in most nations including India is in paroxysm of sorts. The Brent is trading around US $ 117 Per Barrel while the Indian Basket is about  US $115 Per Barrel and Natural Gas is at US $ 8.7 MMBtu. Experts say India is most comfortable when Crude is at US $ 60- 65 a Barrel and Natural Gas maybe at US $ 5 MMBtu. It’s not only Oil & Gas, Power Generation is facing an unprecedented crisis. States have been permitted, rather told to import coal, throwing all policies out of the window and plunging the sector into disarray. The spiraling Petrol, Diesel and CNG prices along with the near breakdown of the Power Sector in many states can bring in their wake an unprecedented crisis. So much for the much hackneyed energy security of India. 

Just when the world seemed to be recovering from the impact of Covid, the Russia – Ukraine war has plunged most nations into an economic abyss. Interestingly, it’s not that the Indian Oil & Gas sector is not used to such vagaries. From year 1973 when OPEC decided to put an embargo and  Oil prices jumped 350% to Covid induced negative values for US Crude in April 2020, the industry has seen it all. India is the third largest importer of Oil and imports almost  85.5 per cent of its requirements. Unlike  other sectors in India, Oil  & Gas, over a period of time, has developed a reasonable coping mechanism to deal with volatility and geopolitical imperatives under the watchful eyes of MoP&NG. An organ of the ministry, PPAC has made known that India imported 212.2 million tonnes of crude oil in 2021-22, in fact this is lower than pre-pandemic imports of 227 million tonnes in 2019-20. The Oil bill for financial year 2021 – 22  was US $ 119 Billion. To compare the total expenditure in Year 2022 is expected to be US $ 520 Billion. With that kind of expenditure on oil, one can imagine India has a  certain consumer clout in the global market. To date, India has not faced the kind of difficulties which  other nations have faced. Asian neighbors who do not produce oil and even European countries are facing unprecedented difficulties on the energy front. India having diversified its crude portfolio and wherewithal to refine them is thankfully not  dependent on one country or region alone for its needs. The Government of India and MoP&NG with the assistance of major oil companies in the public sector have long since devised viable strategies. The recent embargo on Russian Crude by USA and EU Countries has also been tackled to a great  extent. Interestingly, most Oil PSUs have been purchasing crude through long term deals and the tender route for spot purchases which are not amongst the most fleet footed of approaches. Picking up distress crudes or aggressively trading has never been the forte of Oil PSUs which are saddled with numerous policies, regulations and directives of the Government machinery. They are subject to rigorous scrutiny by  the  3 Big Cs – CBI, CVC & CAG.  The Apex Court has interpreted that PSUs are  ‘State’ as defined in Article 12 of The Constitution of India and therefore amenable to Writ Jurisdiction. PSUs must also adhere by the RTI Act, provide reservation in vacancies as per guidelines, implement the Official Languages Act and carry out business under the forbidding eyes of MoP&NG. These onerous responsibilities have been admirably carried out by the PSUs who are at the forefront of implementing laws and making for a more inclusive India. Private Companies in the Oil & Gas sector do not have to mandatorily follow most directives which are incumbent upon PSUs. Ironically, the Private Companies have not  hesitated to take full advantage of the dispensations which customarily Oil PSUs catering to the Indian consumers should exclusively be allowed to avail. One such recent example is sourcing of crude from Russia. The Govt. of India took a bold decision in sourcing Russian Crude at heavily discounted prices despite US & EU sanctions. The Russian Crude purchasing price in April was US $ 62 per Barrel a whopping discount of 40% on the then prevailing prices. Of course, India has been justifying the purchase on the fact its energy needs have increased so India has to look after its own interests first and foremost. Further US itself has said that such imports do not violate the current sanctions. Additionally,  many European nations and others who are self sufficient are themselves importing Russian Crude & Gas. All that is well but there is another not so well publicized fact that Private refiners in India are lapping up the discounted Russian Crude and  making windfall profits. There are reports that Reliance Industries Ltd. which has the world’s biggest Refinery may have ordered 15 million barrels of Russian Oil since February. It’s a well known fact that Private refiners do not market products in India since the pricing  does not suit them. But its entirely incumbent upon the Oil PSU to market their products almost exclusively in India and even import them if there is a shortfall. These PSU companies are not allowed to pass on the full complement of increased crude or products prices in the international market to the consumers resulting in substantial under recoveries. Simultaneously, the Central/State Governments continue to extract taxes on  Petrol,Diesel,CNG etc. these taxes are one of the most assured sources of revenue for them since Corporate Tax, Income Tax, GST etc. have been found to be wanting. Successive Governments in India have tried to take out several rabbits out of the hat to manage the vital Oil & Gas pricing arithmetic. From issuing Oil Bonds, directed subsidies,  keeping the prices on hold during elections and subsequently raising them, much to the discomfiture of the common consumers, have all been attempted but  have yet to arrive at a more efficacious solution. What needs to be understood once and for all is that the energy – consumer umbilical connect in India is exclusively provided by Oil PSUs alone. For this,  they have to constantly walk the tight rope on pricing and also face the consumer wrath. Private players would rather  have their windfall profits through exports as well as trading abroad extensively rather than sell their products in India.  As a matter of fact,  Private Oil Companies have no moral right in obtaining cheap crude from Russia and then refusing  to sell  products made from it in India. These Private Oil companies should not be allowed to  have humongous profits at the expense of the common citizen. There should be a mandate in place that if cheap crude is obtained under aegis of a Governmental dispensation,  products made from it should be sold in India itself. The BPCL suitors backed out exactly on this count that they would not be able to support prices of products in India. Obviously BPCL is customized towards selling in India rather than exporting, although it has a coastal refinery in Mumbai.

For a second just imagine the kind of havoc which business compulsories and  pressures of constant existential tenterhooks can play upon an Oil PSU like BPCL. They have to do business profitably amidst pressures which are not necessarily business related. The Board has to perform in the company of omnipresent, omniscient, dog strolling plenipotentiaries which necessitates compliance above all. Despite the planet altering climate changes, covid, water wars, Russia -Ukraine conflict  etc. creativity and paradigm changing pathways are not at a premium. This is the story of every PSU Board.

Still the Oil PSUs pertinaciously carry on. Another relevant issue is of   alternative fuels like Hydrogen or Renewables like Wind, Solar, Nuclear or Tapping Ocean Sources Private energy giants take the lead leaving the well intentioned PSUs far behind. It’s a foregone conclusion that the government may have advised  Oil PSUs  to  go slow on alternates, renewables or other large investments till the  picture about their sale is clear. It is a failsafe plan to make these vital Oil PSUs non performers of the future. The current Budget spoke about Capex being a route of revitalizing the nation’s economy. Its well know that in India,  the Government along with PSUs make sizeable contribution towards Capex. However the future of PSUs being a question mark, no one can blame the PSU Boards to have serious rethink on Capex. All this does not auger well for the common citizen of India. As it stands, the tables have turned drastically for Oil PSUs. They neither have a level playing field currently nor have a clear vision of  the future. 

Coming to the egg on face of Dipam,  Nitie Ayog and other bodies  on the recent failure to sell BPCL, it has now been  proven that their theory of total annihilation of PSUs is absolutely erroneous, neither economic reasoning nor practicality of the markets support it. The bodies  may not deign to heed to business dictates, words of prudence, will of the citizens or even pure common sense. When confronted with reality there is no Plan B. They seem to be dependent on divine providence to see things through. That being the case, they should take immediate heed. Through the imbroglio of BPCL divestment the heaven has spoken. It has clearly decreed against the sale of profitable Oil PSUs. In the current situation of unprecedented  economic challenges the one rescuer of the common Indian citizen is a profitable Oil PSU. God forbid the day when this fig leaf is also snatched away. Charles Spurgeon had once preached,  ” When friends flee, what a blessed thing it is to see that the Savior does not forsake us”. Let us not bite the very hand which feeds us.(By Sidhartha Mukherjee)

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