GUWAHATI, May 15 — With the BJP-led NDA government determined to go ahead with the disinvestment of government shares in the public sector Bharat Petroleum Corporation Ltd (BPCL), the future of the Assam Accord Numaligarh Refinery in which BPCL controls 63.3 per cent equity is shrouded in uncertainty.
Chief Minister Tarun Gogoi and Members of Parliament from the State concerned at the development have already urged upon the Union Petroleum Minister Ram Naik to safeguard the status of the Accord refinery as a public sector unit (PSU). Expressing apprehension that delay in taking timely action may be disastrous for the future of NRL, they have suggested that restructuring could be effected before the disinvestment process started by enhancing the equity stake of Oil India Limited (OIL), which already holds 12.3 per cent share in the Accord refinery to 51 per cent, while reducing BPCL’s equity to 26 per cent. As OIL is a PSU, this will ensure that NRL continues as a PSU, they said.
In his letter to the Petroleum Minister, Chief Minister Gogoi has pointed out that NRL by remaining in the public sector would meet the aspirations of the people and the State government as it would be in line with the spirit of the MoU signed by the State government with the original promoters. Moreover, it would also ensure that the concessions given to the Accord refinery remain with the public sector, he said. Significantly, BPCL itself is interested in transfering its majority stake in Numaligarh Refinery to Oil India Limited for several logistic factors.
BPCL Chairman Sri Behuria, who was earlier Director (Marketing) in a letter dated June 28, 2002 to OIL, reiterated BPCL’s suggestion that OIL should increase its stake in NRL to 51 per cent with BPCL’s equity going down to 26 per cent Government of Assam and OIDB continue to hold 10 per cent equity each.
According to Sri Behuria, while this would ensure crude oil security for Numaligarh Refinery, BPCL would be interested to have MoU with NRL for marketing NRL products outside the North East, mainly in the eastern region of the country. The BPCL chairman pointed out in his letter that OIL’s majority stake in Numaligarh Refinery would give a big boost to its plans for marketing within North East by setting up retail outlets. The Ministry of Petroleum and Natural Gas has already given necessary approval for this, he said.
It is to the noted that direct marketing by Numaligarh Refinery in the North East would provide local customers with a choice vis-a-vis Indian Oil Corporation (IOC), which has a monopoly in the region. According to the website Indian petro.com the Petroleum Ministry is seriously examining the pros and cons of the proposal. This reportedly includes the possibility of permitting such an acquisition before the public offering of shares in BPCL.
The website report said, ‘According to one analysis, NRL is a “perfect fit” for OIL as the latter’s crude oil output matches NRL’s refinery capacity. “The standalone refinery is unviable on its own. OIL can utilise its strong E&P margins to prop up the refinery and, in the process, emerge as an integrated oil company. As for as BPCL is concerned, its valuation will go up and not down if it is able to palm off the refinery, in return for liquid assets, before it goes public.”
According to knowledgeable circles in the oil industry, as Oil and natural Gas Commission (ONGC) has been allowed to go for backward integration through the acquisition of Mangalore Refinery, Oil India should be permitted to takeover NRL. Moreover, the fact that BPCL will continue to retain 26 percent in the NRL will mean that it would continue to safeguard its supplies while reducing its exposure in an asset located in a disturbed area.
It is not surprising that BPCL is also keen to sell its equity in NRL as the profitability of the refinery is entirely dependent on excise concession. With the disinvestment of BPCL already announced by the government, it is not known who will be the owner of BPCL and thereby NRL. In fact, Government of India may be tempted to withdraw even the 50 per cent excise concession being given to NRL (already reduced from 100 per cent) rather than face accusation of favouring private individuals or company. If this concession is withdrawn, the future owners of BPCL and NRL may not wish to run an unprofitable refinery. Under the circumstances, the only way to safeguard the Accord Refinery would be to retain it as a PSU and continue with the excise concession.
Interestingly, the All Assam Students’ Union (AASU), a signtory to the Assam Accord under which the Numaligarh Refinery was set up is yet to react to the developments which may seal the fate of the Accord refinery if it falls into the wrong hands.