Another disinvestment?

With the board of Bharat Petroleum Corporation Ltd. (BPCL) going ahead with the acquisition of a majority stake in Kochi Refineries, a disinvestment of sorts has taken place. The Government held 55 per cent stake in the stand-alone refinery that was previously called Cochin Refineries Ltd.

Along with the change in its nomenclature to Kochi Refineries, a threat to its independent status was always on the cards. This was because rapid changes have been contemplated for the petroleum sector, the dismantling of the administered price mechanism (APM) and liberal independent imports of crude being some of the moves expected.

Besides, an integration of refining and marketing has been decided upon. The other stand-alone refinery Chennai Petroleum Corporation Ltd. (CPCL), previously Madras Refineries Ltd., will come under the control of Indian Oil Corporation shortly.

As a disinvestment exercise, the purchase of Government stake by BPCL is more akin to the ``share swaps'' which the Government focussed on its key oil sector companies in 1999. Yet for a variety of more valid reasons the stand-alone status of these two refineries has been a question mark with the present exercise possibly providing solutions.

BPCL is paying the Government Rs. 659 crores for the 75.89 million sharers of Kochi Refineries. Each share has been valued at Rs. 86.85 and is close to Kochi Refineries' book value of Rs. 93. BPCL's top executives have justified this acquisition on the ground of enhanced refining capacity that will vastly extend the capacity and coverage of its existing refinery in Mumbai. BPCL also owns through its subsidiaries another refinery in Numaligarh in Assam and plans to complete another in Allahabad. It has also been mentioned that BPCL's financials are strong enough to fund this acquisition. The debt-equity ratio of BPCL is at a comfortable 0.74 and has a cash balance of Rs. 350 crores which means that the funding will be through a mix of debt and internal accruals.

For the Government's disinvestment programme this can only have limited significance. The apparently more straightforward BALCO sale has been mired in controversy. This one will not.

CRL

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