The Finance Ministry has added a new provision to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 to facilitate strategic disinvestment of Bharat Petroleum Corporation Limited (BPCL).

“Foreign investment up to 100 per cent under the automatic route is allowed in case an ‘in-principle’ approval for strategic disinvestment of a PSU has been granted by the government,” the notification said.

New provision

This new provision is in addition to the existing one that prescribes FDI up to 49 per cent in petroleum refining PSUs, without any disinvestment or dilution of domestic equity.

This follows the Cabinet decision taken in July, which was not made public then. The FDI cap of 49 per cent in oil refineries was proving to be a hitch in the government’s attempts to sell its near 53 per cent stake in BPCL, which is the country’s second-largest refiner.

The planned stake-sale is part of the government’s effort to raise ₹1.75-lakh crore from disinvestment of public sector companies and financial institutions in 2021-22.

Multiple EoIs

Although, the government is trying to complete the disinvestment process this fiscal, on September 25 Finance Secretary TV Somanathan indicated that it could happen early next fiscal. Post this notification, some more processes need to be completed before the transaction is completed. One of the reasons for delay could be completion of due diligence, after which financial bids could be submitted.

The government has already received multiple expressions of interest (EoI), including from the Vedanta Group, for BPCL. Once the financial bids are received, then the reserve price will be set.

The government has already said that by the extant procedure, the valuation by the independent valuers is considered for fixing the reserve price only. To ensure non-collusive competitive bidding, confidentiality is maintained about the valuation exercise and the independent valuers are bound by a confidentiality undertaking.

The valuation, however, provides inputs for fixation of the reserve price, while the price discovery is a product of competitive bidding.

The reserve price is arrived at through a well-defined due process only after the financial bids have been received and are kept in a sealed cover till the reserve price is determined.

In 2020-21, BPCL’s Profit After Tax (PAT) was ₹19,042 crore against ₹2,683 crore during 2019-20. The reason for the higher profit this year is mainly the sale of Numaligarh Refinery Limited equity, higher inventory gains and adoption of the new income tax rate.

BPCL’s PAT in 2016-17, 2017-18 and 2018-19 was ₹8,039 crore, ₹7,976 crore and ₹7,132 crore, respectively.