Govt may give 'divested' PSU status to BPCL to save LPG customers' subsidy

The government may give Bharat Petroleum Corporation (BPCL) the status of “divested public sector undertaking” to ensure that its cooking gas customers do not lose subsidy even after the privatisation of the company, according to multiple sources aware of the development. A proposal regarding this may soon get the Union Cabinet’s nod, they said.

There is, however, also a plan to gradually transfer the existing LPG consumer base of BPCL to Indian Oil Corporation (Indian Oil) and Hindustan Petroleum Corporation (HPCL), which remain directly or indirectly owned by the government. But this proposal may not see the light of the day since the LPG consumer base is part of the preliminary information memorandum (PIM) based on which the government has sought expressions of interest for stake sale, the sources said. 

Based on the data available with the Petroleum Planning and Analysis Cell (PPAC), BPCL has around 73 million LPG consumers, while Indian Oil has 134 million and HPCL around 78 million.

"The status of divested PSU will be good enough to continue with the subsidy mechanism. However, transferring of consumers is unlikely because the majority of investors are looking for the marketing segment of BPCL," said an industry player. Vedanta and Apollo Global Management are reportedly in the race to buy government stake in BPCL, though the former is the only one that officially said it has put in an expression of interest. 

Giving it the status of divested PSU to BPCL could mean that other private players might not be considered at all for subsidy benefits. The LPG business of parallel marketers like Reliance Industries (RIL) and Nayara Energy is already struggling to get a substantial market share from the aggressive state-run majors. Private players — including RIL, Nayara Energy and Total — had asked the government to allow them to sell subsidised LPG cylinders and that they be made part of the subsidy-transfer mechanism. 

BPCL has a share of 26 per cent of total 285 million liquefied petroleum gas consumers in India.

The price of petroleum products in the country are linked to the price of the respective products in the international market. The government, however, continues to modulate the effective price to consumers for subsidised domestic LPG and the consumers get the product at a subsidised rate. The subsidy increases or decreases depending on the movement of the product price in the international market. During 2019-20, total subsidy on LPG was around Rs 22,635 crore, while that on kerosene was Rs 1,833 crore. 

The government's plan is to sell its entire shareholding in BPCL comprising 1.15 billion equity shares, with the transfer of management control to a strategic buyer, excluding the company's 61.65 per cent in the Numaligarh Refinery in Assam. BPCL operates four refineries in India -- Mumbai Refinery, Kochi Refinery, BORL-Bina Refinery (Bharat Oman Refineries), and Numaligarh Refinery (1999) -- with a combined crude oil refining capacity of 38.3 MMTPA (million tonne per annum). The company runs 24 per cent or 17,138 of total 71,843 retail outlets in India.