By R. Sasankan

The Narendra Modi government has slammed the brakes on an already stalled privatisation process. That line baldly sums up the curious case of Bharat Petroleum Corporation Ltd which has hung in a state of suspended animation ever since the Union cabinet first cleared plans to sell its stake in the state-owned petroleum refiner back in 2019.

“We need to go back to the drawing board,” news agency Press Trust of India quoted an official as saying two weeks ago. Almost simultaneously, DIPAM secretary Tuhin Kanta Pandey said the government would not rush into selling the country’s second-biggest state refiner if only a single suitor turned up for the bidding process.

The BPCL privatisation plan has lurched between resounding enthusiasm in the initial stage and phlegmatic indifference – the mood swing supposedly in response to the pandemic-induced crisis and the uncertainty thrown up by what Reserve Bank of India governor Shaktikanta Das dubs as the “tectonic shift” in the world economy after the outbreak of hostilities in Ukraine.

“The government may take a fresh look at BPCL privatisation, including revising the terms of sale. We need to go back to the drawing board on BPCL. There are issues in terms of consortium formation, geopolitical situation and energy transition aspects," the official told PTI.

One way or another, the BPCL stake selloff has been battling a jinx. The situation has been complicated by the fact that the government has opted not to consult experts who are familiar with the developments in the international petroleum industry. No known energy expert has been involved in the process.

The government may have its own reasons for keeping the consultants out. But the process has been marred because there doesn’t seem to be a credible plan in place to kick start the process all over again. BPCL is a precious asset in oil marketing field. While there has been no serious objection to privatising it, the government needs to be keenly aware that if it bungles the process, it will not only hurt national interest but also damage the image of the government and the ruling party.

“History is more or less bunk”, Henry Ford famously asserted in 1916. Successful businessmen have embraced that idea in the spirit of innovation. But sometimes it can become extremely risky to discount the lessons of history. I have peeled off a lesson from the pages of history to firmly illustrate this point. Hark back to the time when the United Progressive Alliance (UPA) government headed by Dr Manmohan Singh permitted the entry of private players into petroleum retailing which, at that time, was totally dominated by the three oil marketing companies: IOC, BPCL and HPCL. The country’s most aggressive private company, Reliance Industries Ltd (RIL), the Ruia-controlled Essar Group and international oil major Shell swung into action. While RIL and Essar went about opening retail outlets in a big way, Shell preferred to keep a low profile, restricting its foray to around 100 retail outlets to start with. These retail outlets were opened in 2006 and 2007. However, disaster struck in 2008 when crude prices started to surge. The very same government re-imposed a subsidy on sale of petrol and diesel and this was restricted only to the outlets of public sector oil marketing companies. The private players had no other option but to shut down their outlets. They reopened their outlets after three or four years but never recovered from the shock. History can repeat itself. No sensible foreign company can be expected to enter India’s petroleum retailing business without an unequivocal assurance that such a situation will not recur.

When the government decided to put BPCL on the block in 2019, then petroleum minister Dharmendra Pradhan said the intent was to introduce "competition" in the downstream market. He made it abundantly clear that the government was keen to see an oil major acquire BPCL. None of the global oil giants responded to the invitation. The only sign of interest came from a couple of private equity players. This was not what the government had expected. But it doggedly pressed on with the selloff process and opened negotiations with the private equity firms. The process is still on.

It is now becoming crystal clear that the present mess is a result of bureaucratic obduracy in sticking with a cracked template while remaining impervious to change or ready to consider other options. It is obvious that the stalled privatisation process is a result of the inability to create the proper atmosphere in the domestic market before inviting foreign oil companies.

BPCL is an oil marketing and refining company. Among the OMCs, it is rated as the best and has a nation-wide marketing network. It enjoys a 27 per cent market share on an average. In the case of petrol and diesel, the market share is close to 29 per cent. There would certainly have been many international oil companies interested in bidding for BPCL had the government launched the process after proper planning.

What is the option now? Let the ongoing process be treated as a preliminary exercise to test the waters. The government cannot afford to bungle the process all over again and, therefore, the re-launch of BPCL privatisation should be preceded by proper planning and consultation with genuine energy experts.

The first thing to do is to inject genuine competition in the market place; that is the only way to extract value for India’s downstream companies. Without an improved regulatory regime, no oil company will have any incentive to sell domestically produced petrol and diesel in a tightly-controlled market. That is the reason why Reliance and Essar did not succeed.

 If raising resources is the real purpose of selling the government stake in BPCL, then it would be better to let Indian Oil Corporation buy BPCL. The government could then, in addition, sell a small stake of the larger Indian Oil Corporation to raise more money.

Competition has been a much abused term in India. No one quite knows what it means, least of all the petroleum ministry and the industry regulator. The entry of the private sector was supposed to inject "competition" in the markets, at least in a limited manner. But this never happened. RIL and Essar, which is now called Nayara after becoming Rosneft’s Indian subsidiary, remain significant players in petroleum retailing. But they have made no difference to the consumer: not in price and not even in the quality of fuel.

At the risk of repetition may I point out that a genuinely competitive hydrocarbon sector will emerge only when an informed regulatory regime: (a) incorporates the basic provisions to encourage such competition transparently on a level playing field; (b) sets the rules under which the multiple players, active in the sector, will compete; and (c) addresses market imperfections or deliberate misuse and/or violations of the rules that give an unfair advantage to one or more players.

The government should create such a regulatory regime before it begins the next exercise in privatization of PSU oil marketing companies. Hindustan Petroleum Corporation Ltd (HPCL) can also be delinked from ONGC and privatized. And while we are at it, let us not forget that India’s upstream oil sector also lacks an effective regulator.