The government is likely to correct a policy anomaly on foreign direct investment (FDI) in petroleum refining next week.Private refiners are allowed 100%.
NEW DELHI: The government is likely to correct a policy anomaly on foreign direct investment (FDI) in petroleum refining next week.
While private refiners are allowed 100% FDI, government-owned companies have to seek Foreign Investment Promotion Board (FIPB) approval for foreign participation beyond 26%.
The Union cabinet would be approving a proposal next week to raise the cap to 49%.
The move could pave the way for foreign participation in refineries being set up by companies like Indian Oil Corporation, Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation.
It could also smoothen the participation process of the LN Mittal group and French petroleum major Total in HPCL’s Visakhapatnam refinery.
“The government is taking the same liberalised view on foreign investment in refining for others as it took for the Mittals,” said Gokul Chaudhri, partner in consultancy firm BMR & Associates.
LN Mittal’s participation in HPCL’s Bhatinda refinery in Punjab was approved by the Union Cabinet in June this year, subject to the anomaly being removed.
The approval was required since Mittal Energy Investment Pte was picking 49% equity in the refinery.
Besides Mittals, HPCL would hold 49% equity in the 9 million tonne (9mt) refinery, with the remaining 2% being held by financial institutions.
Mittal Energy Investment is contributing Rs 3,506 crore in the project that is estimated to cost Rs 7,155 crore.
The FDI dispensation was not restrictive, Chaudhri said, adding, the government should encourage foreign companies to set up 100% refining subsidiaries. “But FDI is on the only barrier. The viability of the project is more important,” he said.
The Mittals agreed to be part of the Bhatinda refinery after a number of foreign partners did not accept the offer.
Another case in point is BPCL’s search for a foreign partner for its Bina refinery in Madhya Pradesh. BPCL had formed Bharat Oman Refineries Ltd (BORL), a joint venture with Oman Oil, to set up a 6 mt refinery at Bina. Oman Oil currently holds a stake of just 3% in the joint venture, though when the refinery was conceived some 10 years back, the company was conceived to be a major partner in the refinery. BORL was promoted by BPCL and Oman Oil as a 50:50 joint venture.
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