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Target to be missed? BPCL, ConCor strategic sale running behind schedule

It is banking on sale of its 53.3% stake in BPCL (worth some Rs 60,000 crore) and 30.8% in ConCor (Rs 11,000 crore) to meet the target.

Fresh doubts have emerged on whether the government will be able to conclude the Cabinet-approved strategic sales of BPCL, ConCor and Air India before the end of the current fiscal as it appears racing against time given the elaborate processes involved. Completing the disinvestment of BPCL and ConCor — which involves transfer of management control — is crucial for the revenue-hungry government to meet the FY20 disinvestment target of Rs 1.05 lakh crore and avoid a big fiscal slippage.

The Centre’s net tax revenue grew just 3.4% in April-October period of the current fiscal year, against a growth of 25.3% required to meet the budget estimate for the year.

According to sources, even though such strategic transactions usually require at least a little over four months to conclude after expressions of interest (EoIs) are invited, even EoIs have not been floated so far for the three PSUs’ strategic sale.

The Centre has collected only Rs 17,364 crore or 16.5% of the FY20 disinvestment target so far. It is banking on sale of its 53.3% stake in BPCL (worth some Rs 60,000 crore) and 30.8% in ConCor (Rs 11,000 crore) to meet the target. As for the proposed sale of AI, it is unclear at this stage whether or how much it will contribute to the government coffers.

The department of investment and public asset management had held a few road shows on BPCL and will be organising a few more in the coming weeks, including in Canada and UAE. Typically, 30-45 days are given at the EoI stage for potential bidders to express interest.

At the second stage, request for proposal (RFP) is sought from qualified bidders with the process requiring another seven weeks to ensure that bidders have enough time to form consortia and tie up the finances. Thereafter, another seven weeks are required for the highest bidder to get security clearance to become a confirmed, selected bidder. The confirmed bidder would then need to obtain all necessary regulatory approvals.

Even if the government truncates time by giving bidders access to data room of the PSUs at the EoI stage itself (rather than at RFP stage) and opts to avoid some other steps to cut down further on time, it still has to follow various mandatory processes that are time-bound.

If the intended sale of BPCL to a private party — RIL, Vedanta group and Saudi Aramco are seen to be in the fray — doesn’t materialise, the government may require to consider selling its stake in BPCL to one or more other PSUs if the target has to be met. However, sources said the government was unlikely to take this route given that sale of HPCL to ONGC and REC to PFC in earlier years invited much criticism, as they undermined the policy intent behind disinvestment.

The debt and liabilities of AI stood at Rs 73,255 crore at the end of last financial year. In a debt recast carried out earlier this fiscal, the Centre took over Rs 29,464 crore from the national carrier’s books through a special purpose vehicle (SPV). The government may take over another about Rs 20,000-crore debt, to make the airline more attractive for buyers. The strategic buyer may have to take over close to Rs 24,000 crore, including debt backed by assets and liabilities such as working capital loans and dues to aviation fuel suppliers.

In PSU-to-PSU transactions, the Centre could manage to divest its entire stake in power firms THDC and NEEPCO to NTPC and BPCL’s 61% stake in Numaligarh Refinery to a state-run oil firm in FY20 itself, sources said. The stake sales in THDC, NEEPCO and Numaligarh Refinery could fetch about Rs 25,000 crore.

The government completed its 52% stake sale in REC to Power Finance Corporation for Rs 15,000 crore in FY19 while its 51.1% stake sale in HPCL to ONGC for Rs 36,915 crore had taken about six months in FY18.

Source: Financial Express