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The Union government has approved 100% foreign direct investment (FDI) in state-run oil companies. This move will prove to be instrumental in facilitating overseas investors buying stake in Bharat Petroleum Corporation (BPCL), India’s second-largest refiner, which is in line for disinvestment.
Govt to issue executive order
This investment authorisation will also pave the way for the flow of foreign investment in other public sector oil companies that could be listed for disinvestment in the future. This decision taken by the government is going to be implemented through an executive order that will be issued and there is no requirement for any legal amendment. As per the existing policy, FDI in state-owned oil companies has been capped at 49%. Private sector entities are allowed to have 100% foreign holding.
This approval for hike in FDI will facilitate the government in selling its stake in BPCL to a foreign buyer. The government currently owns a 52.98% stake in BPCL and wants to sell it in its entirety. This is part of the government’s plan of raising close to $23.5 billion from selling its stake in different companies.
Divestment in BPCL
This overhaul in the FDI regime was needed given the dynamics of the proposed stake sale of BPCL. Most bidders who had expressed interest in buying a stake in the state-run refiner had the involvement of a foreign investor. Vedanta, owned by Anil Agarwal, has formed a special purpose vehicle in collaboration with London-based Vedanta Resources for this purpose and has already submitted its expression of interest (EoI) in acquiring BPCL. Other companies who have also shown interest in BPCL are Apollo Management, and I-Squared Capital-backed Think Gas.
Privatisation of oil and gas sector
This move is expected to help in the process of privatisation of more PSUs in the oil and gas sector as the government has decided to keep a bare minimum presence in these sectors. The other companies could be privatised too or other options like mergers, closures and making them subsidiaries of other PSUs could be explored as well.