The government has decided to evaluate security risks associated with prospective buyers of state-run Bharat Petroleum Corporation Ltd (BPCL) such as indirect Chinese participation before declaring the name of the highest bidder to avoid delays, people familiar with the matter said.
The entire bidding process will be jeopardised if security clearance is denied to the declared winning bidder as the valuation of the company would be in the public domain by then. Hence security clearance prior to opening of the financial bid is a must, the people said requesting anonymity.
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“In the changed geo-political scenario, it is necessary to be cautious. The sale of BPCL in the current finance year is crucial for the government to achieve its disinvestment target of Rs 2.10 lakh crore,” one of the persons said.
Officials said BPCL is of strategic importance and hence all precautions need to be taken to ensure no entity from hostile countries such as China and Pakistan have even indirect connections with the prospective buyers.
India’s ties with China have deteriorated since 20 Indian soldiers were killed in a clash with Chinese troops in Ladakh in June. The government has taken measures such as banning of Chinese mobile applications like TikTok, citing security concerns.
Divakar Vijayasarathy, founder and managing partner at consulting firm DVS Advisors LLP, said as BPCL is an asset critical for the energy requirements, the security clearance is expected to be much more stringent with the last date for submission of bids having been extended thrice. Vijayasarathy added mandating security clearances for all the interested parties is a step in the right direction instead of doing so in case of only the highest bidder. “In the recent past, many contracts/tenders, in which Chinese companies were participating, have been cancelled at the last moments. Such jeopardy could well be avoided [now]…”
The people cited above said the matter was discussed at the meeting of the Core Group of Secretaries on Disinvestment on August 20. The group was formed in March 2016 to fast-track strategic disinvestment of central public sector enterprises. It is chaired by the cabinet secretary and has representatives from ministries of law, finance, corporate affairs, petroleum, department of investment and public asset management (DIPM) and NITI Aayog.
“Security clearance of only H1 [highest] bidder after opening the financial bid may be too risky for the strategic disinvestment case as any non-clearance from security angle may jeopardise the long-drawn process as bids would have been opened and price would have been discovered,” a second person said, citing discussions at the core group meeting.
He said DIPAM informed prospective bidders on Saturday to obtain security clearances while submitting their bids. According to the earlier guidelines issued on September 13, 2017, a winning bidder could obtain security clearance after its name as the highest bidder was announced.
Bidders have been asked to obtain simultaneous security clearances along with their bids so that if the highest bidder fails to obtain security clearance, the next highest having security clearance can get the deal on the condition of matching the amount bid by the winner, the first person said.
“It is important, especially in current geopolitical context, to have security clearance after the financial bids have been made but before they are open so that only the financial bids of security cleared bidders are reckoned for H1 determination,” the person said.
Elaborating on it, he said, if the winning bidder forms a special purpose vehicle to sign share purchase agreement (SPA), security clearance of all entities involved in SPA would also be required.
Deepto Roy, partner at law firm Shardul Amarchand Mangaldas & Co, said, “The requirement of security clearance for all bidders would add an additional qualification criteria… it would add certainty to the process since bidders would be aware of whether they meet the necessary criteria at the qualification stage instead of moving to the next stage and finding itself disqualified at the financial bid stage…”
He said it is important the government provides details of the nature of the security clearance and the process for the same so that it is clear to all bidders and does not lead to arbitrariness at a later stage.
The Union Cabinet approved the sale of government’s entire 52.98% stake in BPCL in November 2019. The government invited expression of interest (EoI) from prospective buyers on March 7. The disinvestment of the company could not take place in 2019-20 as the last date for submission of EoI was May 2. This deadline was first extended to June 13, then to July 31 and finally to September 30.
“While disinvestment of public sector enterprises (PSE) has been attempted in the past, Government has fallen short of its target by 24% cumulatively in the last five years. In the short to medium term, private sector interest may also be lower for PSE assets due to shortage of capital among other reasons,” consultancy firm PwC India said in its report Full Potential Revival and Growth – Charting India’s medium-term journey.