Ministry against open bidding for IBP selloff

Ministry against open bidding for IBP selloff
EEB/PTI

NEW DELHI, JULY 2: In order to retain its hold on public sector companies, the Ministry of Petroleum and Natural Gas is not favouring open bidding process for divestment in IBP and instead plans to recommend the sale of government equity in IBP to public sector oil companies -- Indian Oil, Bharat Petroleum and Hindustan Petroleum, thus violating the spirit of entire privatisation process.

Top petroleum ministry sources said the ministry is working on a proposal to make out its case against the open bidding for IBP, the exclusive marketing company in the petroleum sector. The proposal will also list out the benefits resulting from the sale of IBP to oil PSUs rather than auctioning it to foreign players.

Union Petroleum Minister Ram Naik said his ministry is in the process of evaluating all the options towards the successful sale of IBP. The best option, as per him, would be the one which will fetch the government the highest price.

However, the minister added, "multinational oil majors are keen to get a foothold in the lucrative areas of marketing and given a chance would logically bid for IBP. This will definitely fetch us a big price. However, my logic is that if the Indian oil companies including IOC and BPCL, can give us this price then why should we sell IBP to foreign companies? To me, going by the auctioning route would mean offering lucrative company like IBP on a platter", added Naik.

A clearance from the cabinet, will however, have to be sought before this proposal is implemented. It may be noted that IBP has been listed for disinvestment during the current fiscal by the cabinet committee on disinvestment (CCD) and the petroleum ministry has been asked to prepare a roadmap towards a profitable sale of IBP.

Sources say the petroleum ministry has not taken any decision as yet over selling its entire equity in IBP to Indian Oil and is open on accommodating both BPCL and HPCL in this sale process.

The ministry also feels that sale of government stake through the open bidding route would give an easy access to a foreign company to the 1,560 retail outlets of IBP, many of which are in prime locations, without any significant investments in infrastructure.

This would put IBP in direct competition with IOC, BPCL and HPCL after the year 2002 when the marketing is thrown open to the private sector.

IBP with a chain of 1,560 odd product outlets all over the country is an attractive proposition for any foreign company as nearly 50 per cent of IBP's outlets are located in the north, a region having the largest consumers of petro-products in the country.

The ministry, therefore, is in favour of the public oil companies acquiring the government equity in IBP provided they can offer competitive price vis-a-vis foreign companies.

A final decision over the exact modus operandi to be followed for IBP will be taken during the next few months. A whole lot of other issues besides the above options need to be looked into. These relate to the employees of the company who will be directly affected following the sale of IBP. Moreover, a decision on hiving off the subsidiaries of IBP into separate companies is also to be taken.

Meanwhile, the Government has ruled out any discount to oil PSUs, saying it will sell all the four stand alone refineries to Indian Oil (IOC) and Bharat Petroleum (BPCL) at the current market price before taking up disinvestment in the oil sector.

"The price of the four stand alone refineries will bed etermined by the petroleum companies in consultation with Finance Ministry and a financial consultant... any disinvestment in IOC will be taken only after this exercise," Petroleum Minister Ram Naik said.

Naik said government would sell its stake in Cochin Refinery (CRL) and Numaligarh Refinery (NRL) to BPCL while Bongaigon Refinery (BRPL) and Madras Refinery (MRL) stake would go to IOC over the next few months.

He clarified that the Cabinet would soon decide whether to merge the standalone refineries with the two marketing giants or structure these as subsidiaries of IOC and BPCL.

As per a Cabinet note circulated by Petroleum Ministry recently, it has been proposed to make BRPL and MRL as subsidiaries of IOC while merging CRL with BPCL.

The proposal also includes selling the 19 per cent stake of IBP in Numaligarh refinery to BPCL, sources said.

"This restructuring itself will go a long way in helping the government to achieve the disinvestment target of Rs 10,000 crore in the current financial year," Naik said.

Petroleum Ministry is also working out various options for divesting its stake in IBP, including auctioning 2000 retail outlets of the stand alone marketing company and has managed to get assurance from CCD that government equity in three National oil companies would not come below 51 per cent.

"To realise maximum price of disinvestment in IBP, we are working out various options like auctioning 2000 retail outlets of the company or merging them with any other marketing PSUs," Naik said.

The Cabinet Committee on Disinvestment (CCD), at its recent meeting while approving disinvestment in IBP, had also said that Indian Oil Corporation, Oil and Natural Gas Corporation and Gas Authority of India Ltd would be treated as flagship companies and government equity in them would not come below 51 per cent, the Minister said.

"Whether these three PSUs would be classified as strategic or not is likely to come up for discussion at the next meeting of the CCD on July 12," he said.

Naik said prior to that the CCD would circulate a note to all the concerned ministries and then a decision will be taken on this at the Cabinet.

Meanwhile, IOC has already evinced interest to pick upe ntire government equity in IBP, saying the standalone refinery was carved out from the Fortune 500 company.