Bharat Petroleum divestment process begins amid coronavirus lockdown

Assam gives NOC for sale of 61.65% stake in Numaligarh Refinery, a BPCL subsidiary

Despite the Covid-19 lockdown, the central government is keeping the ball rolling for divestment of its stake in Bharat Petroleum Corporation (BPCL). The Assam government has given a no-objection certificate (NOC) for the sale of 61.65 per cent BPCL stake in Numaligarh Refinery (NRL).
 

The sale of NRL to a state-run entity is seen as a first step towards the divestment process of BPCL. The state has given the NOC to the deal on the condition that another 13.65 per cent stake in NRL will be sold to Assam, increasing its total stake in the project from 12.35 to 26 per cent.
 

This sale will precede the divestment of BPCL, which is expected to happen only after October 2021, owing to the lockdown, and the decline in valuations. From a three-month high of Rs 501.65 a share on February 5, BPCL shares dropped by 27 per cent to Rs 368.3 apiece on Monday.

According to a report by ICICI Securities, the drop in share price is due to weakening gross refinery margin, correction in stock markets, and concern that the oil price drop will adversely impact private sector interest in the company. Based on current market cap, the government stake in BPCL is valued at around Rs 42,750 crore.

The Union Cabinet had cleared the proposal for strategic sale of government’s 53.29 per cent stake in BPCL on November 20, 2019. However, the government had made it clear that the stake sale would be excluding the company’s interests in Numaligarh Refinery, which a state-run company will buy.  NRL was incorporated in 1993 as part of the Assam Accord signed in 1985, and hence Chief Minister Sarbananda Sonowal had written to Prime Minister Narendra Modi seeking an exemption for the company from the divestment process.

According to a source close to the development, the Assam government has exercised its first right of refusal, giving a go-ahead for the divestment process on condition that whomsoever is going to buy the BPCL stake in refinery will have to sell 13.65 per cent stake to the state, at the same price. 

Interestingly, Oil India, which holds 26 per cent stake in NRL, has already written to the Department of Investment and Public Asset Management (Dipam) that the company is keen on acquiring the BPCL stake. BPCL had already lined up a development project to ramp up the capacity of NRL from existing 3 million tonnes per annum (mtpa) to 9 mtpa at an investment of Rs 22,000 crore.
 

The refinery was set up at Numaligarh in Assam’s Golaghat district under the Assam Accord signed on August 15, 1985, which had ended insurgency in the state. Based on the initial agreement with the state, the first right of refusal in case of a stake sale in future was given to the state government. During 2018-19, NRL’s net profit had declined by 3.02 per cent to Rs 1,980.3 crore, as against Rs 2,041.95 crore during the same period last year.

NUMALIGARH SHAREHOLDING (In Per cent)

• BPCL: 61.65
• Oil India: 26
• Assam govt: 12.35