Modi government is about to reap some rich dividends in its disinvestment agenda. Giving a big boost to India is a Modi government’s plan to privatise Bharat Petroleum Corporation Ltd (BPCL). As the deadline for submitting the Expressions of Interest (EoI) for 52.98 per cent stake in BPCL nears, hydrocarbons supermajors from the US, Russia and Saudi Arabia are evincing interest in the Mumbai-based oil and gas company.
India is benefitting from the declining interest of the global oil industry in China. N. Vijaygopal, Finance Director at BPCL told Bloomberg, “The choices of investing in oil sector will be limited when the world becomes normal and India will be the only happening alternative.”
Things have been going downhill for China’s oil and gas exploration and production market for quite some time. According to a 2013 study by the US Energy Information Administration, China has the second-highest technologically recoverable shale gas resources at around 1,115 trillion cu f [Tcf] next only to the US with 1,161 trillion cu f [Tcf] of resources.
However, China’s shale gas resources have failed to kick off because of geological issues. Shale extraction is costly and economically unviable in China. More than 65 per cent of the deposits are located at a depth of 3,500 metres and that too in a hilly topography. Shale development costs in China are three times those in the US.
Many global majors who had partnered with Chinese companies through joint ventures and Production Sharing Contracts (PSCs) have, therefore, emigrated from China.
London-based BP was the last of the international oil supermajors to have exited China last year. Others Royal Dutch Shell, Exxon Mobil, ConocoPhillips and ENI too have stopped exploring shale gas in the Communist country because of poor drilling results.
Now, China has become an even more unfavourable destination for oil sector investments. The US is engaged in a major trade war which is not going to end any time soon. As and when the global economy recovers and the oil sector demand also starts picking up, the Big Oil of the US and other international majors are going to remain reluctant to invest in China and head to its southern neighbour, India instead.
India itself offers massive growth in the hydrocarbons sector. The country is a huge oil market with consumption of about 5 million barrels per day, which makes it one of the largest non-OCED petroleum consumers. India however produces just over one million barrels per day.
India is the third-largest energy consumer after the US and China. The oil demand is going to double and touch 90 billion cubic metres by 2040.
The Modi government has some big plans for the energy sector. Last year, Union Oil Minister Dharmendra Pradhan had announced that 58 billion US dollars would be invested in oil and gas exploration and production by 2023.
Another 60 billion US dollars would be invested in the midstream sector- pipelines, import terminals and city gas distribution networks by 2024.
Pradhan had himself said, “Growing presence of global oil and gas majors like Saudi Aramco, ADNOC, BP, Shell, Total, Rosneft and ExxonMobil in India is a testimony to the faith and confidence of global investors on promising India’s growth story.”
It is in such circumstances that the BPCL disinvestment plans seem very promising. IANS has quoted official sources as saying that Saudi Aramco, Abu Dhabi National Oil Co (Adnoc), Rosneft of Russia and Exxon Mobil intend to participate for acquiring the majority stake from the Government of India in BPCL.
India is a huge oil market with favourable investment and political conditions. This is why all oil supermajors want to make an entry. BPCL, which is the third-largest refiner of India and the second-largest fuel retailer in the country with 21 per cent market share, becomes a natural choice for these global giants.
BPCL itself has shown resilience and capacity to bounce back after the Coronavirus-related travel restrictions got eased throughout the country. Vijayagopal said, “My refineries are running at almost 83% of normal capacities and our sales were about 76% of normal sales in May.” He added, “So, there’s no reason for us to be pessimistic about our capability to come back to normal.”
The value of BPCL might have gone down to about 5.7 billion Dollars as compared to 7.4 billion Dollars in February. But the State-owned company is showing resilience and capacity to bounce back to normal. The suitors will not judge the company on the basis of the present value, but only on the basis of its future prospects.
The deadline for submitting initial bids have been extended twice to July 31. However, it seems that with international giants weaning away from China, there couldn’t have been a better time for the Modi government to privatise BPCL and kickstart the process of raising 14.6 billion US dollars through the sale of public assets.
