Union Cabinet approves 100% FDI in PSU refiners to aid BPCL sale

Current FDI policy restricts FDI in oil PSUs to 49%; most bidders who have shown interest in acquiring BPCL have foreign investment

The Union Cabinet on Thursday approved a proposal to allow 100 per cent foreign direct investment (FDI) in public sector refiners, expanding the scope for FDI in the privatisation of Bharat Petroleum Corporation Ltd (BPCL).

The approval by the Cabinet will enable the sale of the government’s 52.98 per cent stake in BPCL to a foreign buyer, and, at the same time, will open the door for FDI in other public sector companies in the oil sector put up for privatisation.

“FDI up to 100 per cent will be allowed under the automatic route in cases where a public sector undertaking has received in-principle approval for strategic divestment (in the oil and gas sector),” a government official told Business Standard.

According to the government’s current FDI policy, 49 per cent FDI is allowed in public sector refining and 100 per cent in the private sector.

“The current policy does not allow foreign companies to place their bids because investment over 49 per cent is not permitted under the FDI policy. This had to be changed,” the official cited above said.

The change will be implemented through an executive order, and will not need any legal amendment, the official said. Legal experts said the Department for Promotion of Industry and Internal Trade (DPIIT) would have to issue a press note in the form of an executive order. 

“The DPIIT’s press note will have to be followed by a notification that will be issued under the Foreign Exchange Management Act (FEMA),” said Atul Pandey, partner at Khaitan and Co.

An official announcement on this is awaited.

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 public the names. 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.

The move will also help in privatising more PSUs in the oil and gas sector as the government is planning to keep a “bare minimum” presence in strategic sectors. The remaining enterprises in such sectors will be considered for privatisation, merger, making them subsidiaries for other PSUs, or closure.