BPCL Disinvestment— Reason

Vast divestment of Bharat Petroleum Corporation Limited (BPCL) accompanying 4 other PSUs has been announced by the Government. CCEA (Cabinet Committee of Economic Affairs) who met under the directorship of Prime Minister Narendra Modi has approved the sale of its unified involvement in Tehri Hydro Development Corp of India and NEEPCO (North Eastern Electric Power Corporation) to NTPC.

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A muffled response of BPCL has been laid out to the government proclamation to divest its unified involvement in the company. Breakdown in BPCL share price by 2.74% to 529 has been witnessed after the market opened on Thursday. The premonition of lower valuation for the company’s Numaligarh Refinery is the major concern for BPCL’s share price downfall. 

Since August 23rd, there has been a significant increase of over 70% in BPCL share price. In the very short span of three months, it is soaring at Rs.549 from a lowering of Rs. 308 in premonition of a disinvestment declaration by the government. As the company’s Numaligarh Refinery would be carried off, to be possessed by another PSU, BPCL’s overall valuation could be jolted. 

Finance Minister Nirmala Sitharaman made a declaration on Wednesday that Government would auction its complete stake of 53.29 per cent in BPCL, but the auction would boycott BPCL’s NRL, in which the company has possession of 61.65% stake. Eliminating the NRL stake in BPCL could entail some potential drawback to the BPCL’s comprehensive valuation, according to Brokerage house Nirmal Bang. BPCL’s earnings per share would be impacted by Rs.6 if the valuation of NRL is less than 10 times its price-to-earnings ratio. Nirmal Bang declared that the stake auction eliminating NRL will only impact government receipts but this stake will yet offer value for BPCL shareholders based on how the valuation of the proposed transfer to another PSU such as IOC or OIL India (who are holding 26 per cent in NRL in Assam) has been done. 

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The smashing divestment plan of government has lined up the auction of five public sector units comprising majority stakes in top-notch oil company BPCL (Bharat Petroleum Corp Limited) and Shipping Corporation of India. Concor (Container Corporation of India) will also be vending its 31% stake along with management control.

In 1976, the company Burma Shell was nationalized under the Act on the Nationalization of Foreign Oi companies ESSO (1974) and was preoccupied by the Government of India to structure Bharat Refineries Limited. It was the first refinery to operate newly found indigenous crude Bombay High and was renamed Bharat Petroleum Corporation Limited. The government was endeavouring to privatize the company Bharat Petroleum Corporation Limited in 2003 but the Supreme Court discredited the Central government from privatizing the Hindustan Petroleum and Bharat Petroleum without the permission of Parliament. The only way to divest in the organizations was to revise the acts to be nationalized in 1970, an adviser for the CPIL said. As a result, the government would require a lion’s share from both the houses to drive through privatization.

In 2016, the Repealing and Amending Act of 2016 revoked the agreement and the government invalidated the statute that had nationalized the firm, doing away the requisite of seeking Parliament acknowledgement before privatizing the firms. Hence, in 2017, Bharat Petroleum Corporation Limited earned the status of ‘Maharatna’ and was booked under the government-owned entity in India with the largest market capitalization and persistently high profits.

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Subsequently, the Cabinet Committee of Economic Affairs authorized the strategic divestment of the Centre’s complete involvement in BPCL (Bharat Petroleum Corporation Limited), Shipping Corporation, THDC India, NEEPCO and Container Corp while surrendering the management control in these firms. The authorization for downsizing stake in certain state-owned firms to below 51% has also been supported.

The government is trying to be at its highest ever objective of Rs. 1.05 trillion for 2019-20 due to the major divestment conclusions. The Centre is longing to reconcile some of the revenue deficit anticipated this year.

The prime cause of carving out Numaligarh Refinery from the strategic divestment was due to its prominence being part of the Assam Accord of 1985 among witnessed among All Assam Student’s Union and the Centre following the anti-immigrant agitation.

The Centre will take off its complete 53.29% stake in BPCL, 63.75% stake in Shipping Corp ad 30.8% stake in Container Corp., Finance Minister Nirmala Sitharaman declared. The Government is in the possession of 54.*% stake in Concor.

These firms will be recognized as Public Sector Enterprises and the Center will go on holding a majority stake and management control in these firms. 

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