Union Cabinet approves 100% FDI in PSU refiners to aid BPCL sale

The Union Cabinet on Thursday approved a proposal to allow 100 per cent foreign direct investment (FDI) in public sector refiners, paving the way for foreign investments in the privatisation of Bharat Petroleum Corporation (BPCL).

The approval will enable the sale of government’s 52.98 per cent stake in BPCL to a foreign buyer, whiile simultaneously opening the doors to foreign investment in other oil PSUs that the Narendra Modi administration decides to privatise in future.

“FDI up to 100 per cent will be allowed under the automatic route, in cases where a public sector undertaking has received in-principle approval for strategic divestment (in the oil and gas sector),” a government official told Business Standard.

As per the government’s current FDI policy, 49 per cent foreign investment is allowed in public sector refining, and 100 per cent in the private sector.

“The current policy allows only 49 per cent FDI via automatic route in petroleum refining by PSUs. It does not allow foreign companies to place their bids, as investments over 49 per cent are not permitted under the FDI policy. This had to be changed,” the official cited above said.

The change will be implemented through an executive order, and will not need any legal amendments, the same official said. Legal experts said that the Department for Promotion of Industry and Internal Trade (DPIIT) will issue a press note in the form of an executive order.

“DPIIT’s press note, will be a followed by a notification that will be issued under Foreign Exchange Management Act (FEMA),” said Atul Pandey, Partner at Khaitan and Co.

An official announcement regarding the easing of foreign investment rules is awaited.

The change in the FDI regime in sale of PSU ownership of refining companies was required as most bidders that had shown interest to acquire BPCL have foreign investment. The government has not made public the names of companies that have shown interest to buy the company. Billionaire Anil Agarwal’s Vedanta has formed a special purpose vehicle with its London-based parent Vedanta Resources, and submitted an EoI to acquire BPCL. Other suitors reportedly are Apollo Management and Think Gas, promoted by I Squared Capital.

The move will also help in privatisation of more PSUs in the oil and gas sector as the government plans to keep a “bare minimum” presence in strategic sectors.

In the New Public Sector Enterprise Policy for Atmanirbhar Bharat, the government had announced a bare minimum presence of the existing public sector commercial enterprises at the holding company level will be retained under government control in strategic sectors. The remaining enterprises in a strategic sector will be considered for privatisation, merger or subsidiarisation with another PSU or for closure.

. Current FDI policy restricts FDI in oil PSUs to 49%

. Most bidders who have shown interest in acquiring BPCL have foreign investment

. Vedanta Group, Apollo Management and Think Gas have shown interest to acquire BPCL

. Relaxing FDI limit to aid BPCL, other oil PSUs’ privatisation

. Press note likely to be issued by DPIIT to enable the change

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