Last week the media (both social and mainstream) was buzzing
with the "source based news" that the government may be considering
yielding a controlling stake in public sector oil company Bharat Petroleum
Corporation Limited (BPCL) to some large foreign petroleum company. There was
however no hint of confirmation from the "official sources".
On Friday, The stock price of BPCL jumped sharply on the basis
of this news. However, most of the gains were given up within 5 minutes of the
market opening on Monday. The fall was apparently outcome of the rise in global
crude prices due to attack on a large oil facility in Saudi Arab.
The enquiry with some large brokerages and traders indicated
that the traders, who bought on Friday, were mostly in panic throughout the
weekend and capitulated into selling their positions as soon as the opening
bell sounded on Monday morning. This stock price movement, though it confirmed
the "herd mentality" theory of stock market price discovery, is still
befuddling. When I tried to put all the pieces together in the Jigsaw Puzzle, I
could not find place for the following pieces:
(a) In 2003, the then Atal
Bihari Vajpayee led NDA had attempted to privatize HPCL and BPCL and split
Indian Oil Corporation (IOCL) into two separate companies to separate the
marketing and refining & petrochemical businesses. The attempt was thwarted
by the Supreme Court which ordered that privatization of HPCL and BPCL requires
approval of the Parliament.
It is true that the present regime enjoys a brute majority in
the Lok Sabha and as such getting approval of the Parliament for selling
controlling stake in BPCL may not be a tough task, unlike 2003 when NDA enjoyed
thin majority and many within the government (including the Petroleum Minister
Ram Naik) were averse to such a move.
Nonetheless, any such move would still require a parliamentary
approval. In my view, this proposal cannot be pushed as a money bill, not
requiring Rajya Sabha approval.
(b) Any reasonably prudent
buyer for BPCL would insist that the policy regarding subsidy on transportation
fuel must be cast in stone before any bid is made for the oil marketing and
refining company. If I have to take a majority stake in BPCL today, I would
insist on a law that either totally and irrevocably prohibits subsidy on
transport fuel by the government through public sector retailers, or makes sure
that all such subsidies in future are through DBT method only and "at pump
prices" are not impacted due to the subsidy on transportation fuel.
(c) The collective wisdom
of the market as of today at least does not believe in the government's ability
and/or intention to stay firm on its decision to deregulate the prices of
transportation fuel. The common belief seems to be that if the crude prices
jump sharply higher, the government may still force public sector oil & gas
companies to bear some part of higher fuel cost.
Otherwise, how would one explain that a company which deals with
an essential commodity having low price elasticity, and earns its margins ad
valorem to its raw material, could be a loser on a sudden and temporary
rise in raw material price.
Moreover, since the company usually owns significant inventory
of the raw material (crude oil), and is also allowed to take forward position
in the raw material also, the quarter end results, just two weeks away, shall
reflect decent inventory gains and MTM gains on forward positions.
(d) The government may also
have to confirm whether it still plans to move completely to EVs by 2030 as
announced earlier.
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