Saudi Aramco, ironically a Govt owned company, front runner in buying stakes in Bharat Petroleum

If the Centre wants to disinvest its entire 53.3 percent stake in Bharat Petroleum, a ‘Fortune 500’ company, it’s the government’s call. Nobody, except probably its 12,000-odd employees, is really opposed to it, one suspects. BPCL’s total assets are valued at Rs.1,36,930 Crore or worth US$20 billion.

But doing this on the ground that “the government has no business to be in business,” as argued by the union petroleum minister, raises questions.

The government is in business all over the world, including a host of capitalist countries such as the USA, Germany, Japan, France, the UK, Italy, Spain, Switzerland, Austria, Israel, South Korea, Saudi Arabia and in Singapore. They control enterprises with state ownership up to 100 per cent. Some of them even own assets totally outside the core sector such as Hotels and casinos. State-owned enterprises (SOEs) are playing an important role in Europe’s economies, especially in the energy, telecommunications and transport sectors.

No one denies that SOE governance frameworks are partly weak and need to be strengthened. Experts suggest that they could be along three important lines such as fleshing out a consistent ownership policy; giving teeth to financial oversight; and making SOE boards more professional.

BPCL is not a greenfield public sector enterprise or SOE of the India government. It was foreign owned and known as Burma Shell before it was nationalised along with Esso and Caltex, also foreign owned, between 1974 and 1977, by the government.

Burma Shell and ESSO were accused of ‘choking’ oil supplies during the 1971 Bangladesh war against Pakistan. This had extremely upset the then Prime Minister, Indira Gandhi, who decided to nationalise these strategic energy companies in the national interest.

Since its nationalisation, Mumbai-based BPCL has grown into one of India’s as well as global top companies. Today, it produces petroleum, natural gas, LNG, lubricants and petrochemicals.

In FY2019, the company’s revenue was Rs.3,42,916 Crore (US$50 billion), operating income Rs.11,968 Crore ($1.7 billion), net income Rs.8,527 Crore ($1.2 billion) and total equity Rs.40,834 crore ($5.9 billion).

India is the fastest-growing energy market in the world and the global oil giants are keen to gain a strong foothold here. Acquisition of BPCL, which has 15,177 petrol pumps out of the country’s total 65,973 retail outlets, provides an excellent opportunity to gain one-fourth of the market share.

BPCL distributes 21 percent of petroleum products consumed in the country by volume as of March, this year. It operates 38.3 million tonnes per annum of oil refining capacities at Mumbai, Kochi, Bina and Numaligarh, accounting for 15 percent of India's total refining capacity of 249.4 million tonnes.

No Indian private sector enterprise is financially capable of taking over the entire assets and business of BPCL. Therefore, the government has little choice but to make its ‘strategic sale” to a foreign buyer.

The government is said to be keen to get international energy majors such as Saudi Aramco, Total SA of France and ExxonMobil to operate in the downstream fuel marketing business so as to bring in competition. Ironically, Saudi Aramco is one of Saudi Arabia’s biggest state-owned enterprises. Initially, Total SA too was a SOE.

Diplomatically close to Pakistan, Saudi Arabia may soon emerge as a key player in India’s energy sector. State-owned Saudi Aramco was placed sixth on the latest Fortune 500 list of the world’s biggest corporations. The oil giant reported revenues of $355.9 billion and profits of $110.9 billion last year, according to Fortune data.

As stated earlier, the government disinvestment in PSEs is entirely its business. The petroleum minister said: "our PSUs have done a commendable job in the building of modern India and ensuring the availability of fuel to the common man. But the common man will benefit most when there is market competition.”

The statement is only partly true. Not long ago, private sector RIL had shut down its retail distribution and petrol pumps when it found the going tough against competition from PSE oil majors. RIL has now inked a retail joint venture with British Petroleum to set up 5,500 petrol pumps in next 5 years.

The minister said "this democracy is committed to the common man of the country. We have to create ease of living through more open and process-driven regulation. Product is important, who is running it is not important. The government has no business to be in business.”

He talked about the telecom and airlines business. Incidentally, two of the country’s three private sector telecom service providers are foreign owned and one of them is controlled by SingTel, one of Singapore’s biggest government enterprises.

Globally, government-run enterprises are fast becoming as competitive as their rivals in the private sector. In a first, more Chinese companies have made it to Fortune magazine’s list of the world’s top 500 firms this year, than those from the United States.

While the number for the US companies declined from 126 last year to 121 this year, 119 companies from mainland China and Hong Kong made it to the list, almost on par with the US. No doubt this is a historic shift.

Notably, the contribution of state-owned enterprises also rose, with SOEs representing 80.2 percent of Chinese companies on the list, up for 76.3 per cent last year. The share of private companies fell to 19.8 percent in 2019 from 23.7 percent last year. SOEs are becoming increasingly competitive in the international market. Although only six Indian companies feature in the latest ‘Fortune 500’ list, as many as four of them belong to the public sector, including Bharat Petroleum which the government has put under ‘strategic stake sale.’

The other PSEs on the list are: Indian Oil Corporation, ONGC Limited — both oil companies — and the State Bank of India. The only two private sector Indian firms in the list are Reliance Industries (oil, retail and telecom) and Tata Motors (automobile and engineering).