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Oil industry rejects junior partner model

Pradeep Puri in New Delhi

If the reaction of the Indian oil industry and officials is any indication, the reported compromise formula worked out to resolve the issue of divestment in Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd could well remain a non-starter.

The formula, which envisages bidding by public sector undertakings for these two oil refining and marketing companies but only as junior partner to a private company, has been described as absurd, non-workable, one-sided and retrograde.

The common refrain was how the government could tell a Navaratna company who to tie up with to bid for HPCL or BPCL.

"This is a complete mockery of the powers bestowed upon the navaratna companies to take their own investment decisions," said a senior PSU official.

Moreover, the government may not get the right price for its divestment if a private sector company is allowed to be the major partner since the bidding amount will be decided by the bigger partner.

Therefore, in case the PSU in the consortium wants to bid aggressively for these companies, it cannot do so.

The whole purpose of the PSUs bidding for the two oil companies, which is primarily to grow by integrating themselves vertically through acquisition of assets, will be defeated.

Since the operational decisions will be taken by the major partners, the PSUs may be asked to stay away from the management of these companies and concern themselves with the return on their investment.

The question being asked by the PSUs is why should they be asked to bid along with a partner.

"We do not want the capital of the partner as we already have sufficient funds and have the ability to raise capital, if required. We also do not need their technology. So why should we be forced to join hands with the private sector," asked an industry official.

This is echoed by some officials of the petroleum ministry as well.

"Though I have not seen the proposal, but if what is reported in newspapers is correct, I think there is something terribly wrong with the governments policy-making. On the one hand we talk about the level playing field for public and private sectors, on the other hand we come out with policies which at totally discriminatory against PSUs," he said.

The divestment ministry also came in for severe criticism from the industry for its flip-flop policy. One day we hear that Indian Oil Corporation will not be allowed to bid for IPCL.

Indian Petrochemicals Corporation Limited. Then we learn that it has been allowed. We were also informed that PSUs would be kept away from bidding for HPCL and BPCL. Now, it is reported that the PSUs can bid but only as junior partners.

"This is not all. While the PSUs cannot bid for HPCL and BPCL, they are free to bid for another PSU under the petroleum ministry -- Engineers India Limited. Is there any consistency in the divestment ministry's method of working," asked the official.

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