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Privatisation Of Oil Sector

Privatisation Of Oil Sector

                                                                                                                                                       By:Smriti Thakur[1]

 INTRODUCTION                                            

When the Indian Economy is facing a slowdown and lack of consumption, the Prime Minister Shri, Narendra Modi government seems to tackle the issue with various reforms to counter the economy’s downward. One of them is the Oil Sector, which requires privatisation of the oil and gas sector. According to the statistics, this sector’s profits to GDP in the year 2018 were around 0.66 % to India’s GDP. This sector saw a drastic fall profit contribution from 1.17 percent in 2008 to 0.60 percent in 2013.

Therefore, the present government also worked that g Vajpayee’s regime, leading to public sector undertaking. Moreover, this decision from the centre to sell a profit-making enterprise in the critical oil sector—BPCL, which has a market valuation of about 1,00,000 crore did not shocked us. The government shock decided to privatise this unit.

MEANING OF PRIVATISATION

Privatisation means to transfer the ownership, property or business to the private sector from the government. The government ceases to be a owner of the entity. Itancan also is defined as the process in which few people take over a public trade company known as “Privatisation”. Thus, this leads to the company’s stack to no longer traded in the stack market, and the gen stock public is barred from holding stake in the company any more. Such a company gives up the name “limited” and starts using the name “private limited” in it is last.

HISTORY OF PRIVATISATION

AFTER INDEPENDENCE

The concept of privatisation is not new to India. India used this concept previously after the independence in 194 when the need arose to build a strong nation with a strong government that seeks solutions for its people’s needs, new policies needed for the implementation for the betterment of them. That is why 90’s witnessed industrialisation, where the companies to build a strong infrastructure.

POST INDEPENDENCE

After the 1990’s the government served and moved its hands to every sector like steel, agriculture, telecommunications and automobiles. Some of them were doing well, but some were not so well. This unsatisfactory outputs from some sectors lead to the implementation of notion “disinvestment” which was brought in the year “1991”, when India was facing significant economic problems, And in which the government highlight the purposes of it that are as follows :

  1. Improve management.
  2. Obtain income for the Exchequer.
  3. To increase the availability of resources for these enterprises.

There is also a benefit of privatisation because it also leads to less political interference in work and reduces red-tapism, which may exist in PSU’s and the increased competitive nature in the market.

WHAT IS OIL SECTOR

The oil and gas sector started its routes in 1889 when the country’s first oil deposits were discovered near “Digboi” in the state of “Assam”.  This sector began in the 1960s, with the discovery of gas fields in Assam and Gujrat’s state. According to India’s estimate in March 2018 of crude oil reserves of 594.49 million tonnes (MT). Since the starting of this sector increase has been rapidly increasing, India is the 3rd largest oil consumer in the world in 2019 with a consumption of 5.16 million barrels per day. And 2nd largest in oil refinery globally with a capacity of 249.9 Million Metric Tonnes (MMT). Seeing state wise, Bombay High is the first largest crude oil producer in India with about 40% of the country’s total crude oil production. Oil and Natural Gas Company is the largest company in the Indian Oil Sector and contributes about 75% of its total oil production.

PRIVATISATION IN OIL SECTOR

Many PSU’s are being privatised by the government such as Bharat Petroleum Corporation Limited (BPCL). Thus, the government invited a bid for the sale of it is the entire 52.98% stake in BPCL. This step of the government lead to a various reaction, some are positive, and some are negative, so before forming our views regarding the same, it is essential to know some of the questions linked with it areas :

  • What is this?
  • Why are people so debating over the issue of privatisation?
  • Why there is a need to study the issue carefully?

To discuss all this read the article very carefully aa, it will explain the answers to all possible questions.

WHAT IS BPCL

BPCL stands for Bharat Petroleum Corporation Limited, is an Indian Public Sector Oil and Gas company. This is India’s second-largest downstream oil company which is ranked 672 in 2018 Forbes List.

Headquarter: Mumbai, Maharashtra.

Large Refineries:  Kochi and Mumbai.

WHY BPCL PRIVATISE

The announcement of BPCL privatisation leads to an enormous debate inside the country. This lead to about 12000 workers to a shocking state. It is being stipulated that the privatisation process of BPCL will take place by March 2021.

The whole process of bidding will take place in a 2 stage that’s:

  • First with qualified bidders in Express of Interest
  • Moreover, in the second round, it is asked to make a financial bid.

The document also stated the conditions  for biding that is :

  • The company which have a net worth of USD 10 Billion.
  • And with a consortium of a maximum of four firms.

This privatisation targets ₹ 2.1 Lakh Crore which has been set by the Finance Minister Smt. Nirmala Sitaraman from the disinvestment process in the budget for 2020-21. Therefore the government wants to sell its 53.29 per cent stake in BPCL, the country’s second-largest state-run refiner, to raise funds to rein in a ballooning fiscal deficit.

RESULTS OF PRIVATISATION OF BPCL

The net profit of BPCL is in the June quarter and April- June was doubles and 2,076 respectively. Bring a significant performer in Indian Oil Sector it has an enormous impact on Indian Economy also. Also, the CSR share of BPCL is ₹ 180 crores. The government from privatisation wants to bridge the fiscal deficit by the profit they will gain from privatisation. However, the economy will be affected as BPCL total profit us about ₹ 2050 crore monthly. This will leads to employment issues as it will also effect due to the privatisation of BPCL.

ISSUES AND CHALLENGES BY PRIVATISATION OF BPCL

This news leads to various protest, thus leading to writing petitions filed in public interest directly before the Supreme Court under Article 32 of India’s Constitution.

According to the petitioner:  The decision to sell a majority of the shares in HPCL and BPCL to private parties is taken without the parliament approval, and thus this will lead to the violation of the provision of the ESSO (Acquisition of Undertaking in India) Act, 1974, the Burma Shell (Acquisition of Undertaking in India) Act, 1976, and Caltex (Acquisition of shares of Caltex Oil Refining India Ltd. And all the undertakings in India for Caltex India Limited) Act, 1977.

According to some people, they fear that this privatisation will lead to a threat to new recruitments. As the Kochi in Kerala, Thus privatisation will hinder the employment.

Another problem is that it may create a potential disturbance by the ongoing projects of BPCL. This shall lead even state government in the case of misconception. As the Kerala government wants to set up a Petrochemical Park near the Kochi refinery, it is affected by the privatisation process. This leads to the Kerala government’s concern because it invests ₹ 25000 crores in the Petrochemical Park project.

WHAT IS DISINVESTMENT

It is a process when governments or an organisation sells it is assets or subsidiaries knowns as Disinvestment. It takes the form of a to reduce in Capital Expenditure. It can be done by the following reasons like political, social, economical etc.

IMPLICITLY ARGUMENTS FOR DISINVESTMENT

Oil is the biggest imported item and the largest spender of the foreign reserves, that is it reflects the national importance and should not be disinvestment. The committee urged the government to declare oil as belonging to the strategic sector, and that oil companies can be removed from the lost of disinvestment.

Another strength is that this can be found in the Jurisprudential Theory of ownership as pronounced by Salmond with a concept that an owner of the property has the right to use it in his/her ways or desires. That is the two PSU’s created by the Parliament also implicitly implied ownership to the government. Moreover, at the time of creating these two PSU’s nowhere, the government mentioned the issue of disinvestment so it cannot be an issue now. This was also succeeded by the enactment that nationalised the banks, which laid down for a 51% government holding in the company and that any disinvestment below this percentage will require a parliamentary mandate.

PROBABLE BENEFITS FROM PRIVATISATION

As privatisation will happen, it is important to know and study the same benefits. The benefits are as follows :

▪ First, it will end the cross-holding structure in the oil sector, which was formulated in the 1990s. Thus, cross-holding may lead to a situation of less competition and more conflict of interest in the sector.

Secondly, there is a chance to increase in salary of the employers or workers stated by N. Vijay Gopal, a Director of Finance in BPCL.

It will also benefit a consumer due to the cut in price and less competition in the market.

  • It will reduce the burden on the government and by which government can focus on other resources.
  • Also, the shareholders will get good returns on the shares of BPCL.
  • Also, red-tapism and government interference would be reduced in the sector, increasing the unit’s efficiency.

CONCLUSION

There is no doubt that the privatisation will lead to good impacts on the economy of the country. By not going with the experience, this privatisation will lead to the consumer happy and lead to the new development in the field of oil and energy sector. It is like that the oil industry is far too important for the nation’s economic development; it may not be correct to leave its control in the hands of private companies. However, the government decision over the issue is firm, and they provide the benefits of the same. The concerns regarding the employees in the news, the government clarified the doubts over the same and assured that no adverse situation would arise for the employers in the same. The process of Privatisation of BPCL is expected to be completed by March 2021. Therefore, only time will tell is that this privatisation will lead to good results or not.

 

REFERENCES

https://www.livemint.com/market/mark-to-market/why-privatization-of-bpcl-will-be-a-good-thing-for-all-stakeholders-1568309050726.html

https://www.google.com/amp/s/energy.economictimes.indiatimes.com/amp/news/oil-and-gas/bpcl-privatisation-could-result-in-reassessment-of-govt-oil-cos-linkages-ind-ra/71931755

https://trak.in/tags/business/2021/01/03/govt-wants-to-earn-rs-90000-cr-by-selling-bharat-petroleum-at-double-valuation/amp/

 

[1] the author is a student of SS Law College

 

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