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PMO to break BPCL, HPCL logjam

P Vaidyanathan Iyer & Pradeep Puri in New Delhi

The Prime Minister's Office is set to step in to expedite divestment in the two blue-chip petroleum companies, Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd.

Petroleum Minister Ram Naik has sought an appointment with Prime Minister Atal Bihari Vajpayee before the next meeting of the Cabinet Committee on Divestment is convened to present his case. Official sources said Naik had expressed reservations on the proposed strategic sale of government equity in HPCL and BPCL.

The PMO is yet to give time to the petroleum ministry. Sources in the PMO said the petroleum ministry could also be asked to present its case directly to the Cabinet Committee on Divestment. Naik has, however, insisted a meeting with the prime minister to push his case for an initial public offering to precede the strategic sale.

The government holds 66 per cent in BPCL and 51 per cent in HPCL and proposes to bring its stake down to 26 per cent in the two companies.

Besides raising security concerns, Naik has sought delinking of the Bina and Bhatinda projects being implemented by BPCL and HPCL, respectively, from the divestment process.

According to Naik, during the build-up to war, the Indian Oil Corporation, BPCL and HPCL were asked to hold 45 days' reserve.

While IOC held 50 per cent of reserves, HPCL and BPCL held 25 per cent each, and the three companies incurred costs to the tune of Rs 700 crore (rs 7 billion).

Further, the petroleum ministry is also of the view that without delinking the Bina and Bhatinda projects, the government will not get attractive prices for its equity in the two companies.

It has also pointed out that if the projects were delinked from BPCL and HPCL, a separate corporation would have to be formed to implement them. Since both the projects are inland, it will not be economical to implement them without the support of an already established marketing company.

The 6-million-tonne per annum Bina refinery project was approved by the Cabinet Committee on Economic Affairs in December 1995, at an estimated cost of Rs 5,277 crore (Rs 52.77 billion). However, the latest estimates put the cost at Rs 6,562 crore (Rs 65.62 billion).

The 9-million-tonne per annum Punjab refinery project is coming up at Bhatinda. A company, Guru Govind Singh Refinery Ltd, was registered in December last for the refinery.

The Rs 9,806-crore (Rs 98.06-billion) project is being implemented by HPCL. The company has already spent Rs 150 crore (rs 1.5 billion) on the project and made commitments exceeding Rs 300 crore (Rs 3 billion).

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