Legal trouble in store for BPCL stake sale

The divestment process of Bharat Petroleum Corporation (BPCL) is likely to face resistance from the Government of Kerala and employees of the oil and gas company examining legal options.

A few employee unions have already approached the Bombay High Court with two writ petitions, in which they argue that if BPCL is allowed to be sold by stock market share value, the loss to the government exchequer will be to the tune of ~4.5 trillion. On July 22, the unions further moved court with a plea for immediate admission and hearing of the writ petition.

On the other hand, the Kerala government is in the process of approaching court, saying the land for the BPCL refinery was allotted for use by a public sector company (not private), and the current divestment process is against this. Based on an agreement with the state in the case of Kochi Refinery land transfer, prior approval has to be taken from the state government. A source said the matter was under consideration by the state’s law department.

The seven unions that have taken legal recourse include Petroleum Employees Union, Bharat Petroleum Karmachari Union, Petroleum Karmachari Navnirman Union, BPCL (Refinery) Employees Union, and the Petroleum Workers’ Union. At the current market capitalisation of ~94,568.57 crore, the value of 52.98 per cent stake in the company would be ~50,100 crore.

In the petition, the unions have argued that compared to the Essar deal of Rosneft, the total valuation of BPCL for the purpose of disinvestment — based on share price — is incorrect. The petitioners alleged that the method of valuation appears to be clearly flawed since a company with a turnover of ~3.38 trillion every year is being valued at only ~60,000 crore for the purpose of disinvestment.

“There will be ~4.46-trillion loss to the nation if BPCL is allowed to be sold by stock market share value,” the petition stated.

The valuation that the unions are coming up with is based on a relative method or asset replacement valuation method, based on which they estimate the total value of the government’s stake to be around ~5.19 trillion.

The unions have drawn comparison with Essar Oil sale. The Essar deal was for ~89,000 crore, while the expected deal for BPCL will be around ~60,000 crore. Interestingly, during the time of the deal, Essar had a debt of ~36,000 crore, while BPCL’S debt was around ~23,000 crore.

In March 2019, the reserves and surplus of Essar were almost nil, while BPCL had ~36,797 crore for the year ended March 2019. The petition highlights that the net profit of Essar was a mere ~32 crore, while it stood at ~7,132 crore for BPCL.