Naik suggests merging HPCL and BPCL

In a last-ditch effort to stave off pressure to privatise petroleum marketing companies Hindustan Petroleum (HPCL) and Bharat Petroleum (BPC...

In a last-ditch effort to stave off pressure to privatise petroleum marketing companies Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL), the petroleum ministry has suggested that the two firms be merged — the argument made is that this will create greater value for an eventual disinvestment. The ministry, however, is not in favour of a strategic sale right now, but prefers issuing shares to the general public for now.

This, along with a note on the implications of privatisation for national security, forms the crux of the petroleum ministry’s presentation to the Cabinet Committee on Disinvestment (CCD). The original presentation was to be made on Tuesday, but the CCD has been postponed due to the fact that deputy prime minister L.K. Advani will not be available.

The presentation would also state that strategic sale of the two highly profitable oil PSUs could derail crucial capacity addition projects — HPCL has planned to set up the 9-mn tonne Bhatinda refinery at a cost of Rs 10,000 crore, while BPCL had planned the 6-mn tonne Bina refinery in Madhya Pradesh at a cost of Rs 6,500 crore. With a massive global excess capacity in refining, few private buyers are expected to complete these projects. Around Rs 500 crore of investments have already been made in these two projects, and the ministry has highlighted this in their presentation.

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The petroleum ministry is also likely to make a case out of high dividend payouts by BPCL and HPCL. During 2001-02, the two PSUs, which are provided no budgetary support from the government, paid dividend equal to their paid up capital. HPCL and BPCL posted net profits of Rs 788 crore and Rs 835.72 crore, and paid dividend of Rs 339 crore and Rs 300 crore.

Disinvestment minister Arun Shourie was expected to lay down a detailed time table on the disinvestment of HPCL and BPCL. Shourie has been pushing forward the case for disinvestment in the two oil PSUs more so since the government has set itself a target of Rs 12,000 crore as disinvestment proceeds for the current fiscal in which HPCL and BPCL is expected to contribute substantially.

Petroleum minister Ram Naik has been opposing the move to sell off the two PSUs, and had insisted that before the units be sold off, his ministry should also be allowed to make a presentation before the CCD.

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