Govt permits 100% FDI in oil & gas PSUs approved for disinvestment

The Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday issued an executive order to allow 100 per cent foreign direct investment (FDI) under automatic route for oil and gas PSUs, in case an in-principle approval for strategic disinvestment has been approved by the government.

The development was followed by the Union Cabinet’s approval regarding the same on July 22. The move will expand the scope for FDI in the privatisation of Bharat Petroleum Corporation Ltd (BPCL) and enable the sale of the government’s 52.98 per cent stake in the company to a foreign buyer. It will also open the door for FDI in other public sector companies in the oil sector put up for privatisation.

“The above decision will take effect from the date of FEMA notification,” an official statement said.

The policy will be applicable to ‘exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG regasification infrastructure, market study and formulation and petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the government on private participation in the exploration of oil and the discovered fields of national oil companies'.

The FDI limit will be 49 per cent, via automatic route, for ‘petroleum refining by the PSUs without any disinvestment or dilution of domestic equity in the existing PSUs’. Before the changes were made, 49 per cent FDI was allowed in the public sector refining and 100 per cent in the private sector.

The change in the FDI regime was required because most bidders that had shown an interest to acquire BPCL have foreign investment. The government has not made the names public. Billionaire Anil Agarwal’s Vedanta has formed a special purpose vehicle with its London-based parent Vedanta Resources, and submitted an expression of interest to acquire BPCL. Other suitors reportedly are Apollo Management and Think Gas, promoted by I Squared Capital.