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Litigation cloud hovers over HPCL, BPCL divestment

Pradeep Puri and Gaurav Raghuvanshi in New Delhi

The litigations following the cancellation of allotment of petrol pumps, LPG agencies and kerosene distributorships made after January 2000 are expected to delay the divestment in Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited by four to five years.

These estimates are based on the fact that the litigations following the cancellation of allotments made by former Petroleum Minister Satish Sharma from his discretionary quota in 1995, were finally settled last year only. The new litigations, bound to be more complex than the ones arising from Sharma's discretionary quota, may take equally long, if not longer, to be completed.

Even if the government orders an inquiry into the allotments, this will also take a similarly long period to conclude.

Petroleum ministry officials say the bidding for HPCL and BPCL cannot be undertaken until the future of these allotments is known to the prospective bidders since they will have to take into consideration these allotments also while evaluating the assets of these companies.

The ministry is hopeful that the divestment in these state-owned oil companies will fetch the government at least around Rs 80 billion each. These calculations are based on the fact that the divestment in IBP had yielded Rs 11.53 billion.

On the other hand, oil marketing companies will start issuing termination notices to allottees and holders of letter of intents for petrol pumps, gas agencies and kerosene dealerships issued from January 2000 from next week and the process will be completed in about 20 days.

A process for the termination of allotments, which minimised the scope for litigation, had been worked out after three rounds of secretary-level consultations between the petroleum and law ministries, official sources said.

It is learnt that a total of 3,718 petrol pumps, gas agencies and kerosene dealerships, and not 3,158 allotments as announced earlier, will be cancelled as the fallout of the government order of August 5.

The previous announcements cancelling 3,158 petrol pump and gas agency allotments following allegations of favouritism had taken into account only the allotments done by dealer selection boards constituted by Petroleum Minister Ram Naik in June 2000.

But since the prime minister's order explicitly spoke about cancellations from January 2000, the total has now gone up to over 3,700, sources said.

Oil companies have so far filed 2,598 caveats in the Supreme Court and high courts to prevent local courts from granting ex-parte stay on the cancellation of dealerships.

Sources emphasised no dealership had been cancelled till now. The termination notice would give a month's notice to the allottees before formally evicting them, they said.

DoD sees no hitch

The ministry of divestment does not believe the litigation following the cancellation of petroleum dealerships would have an impact on the divestment of BPCL and HPCL.

"It is not such a major issue. Such cases happen and we will consider the impact of litigation as and when it happens. The divestment process will not get delayed due to such cases," a senior divestment ministry official said.

Moreover, he said the transaction documents of the deal could be structured in such a manner to make sure the interests of the new management are protected from the litigation, the official added.

Pointing out that the dismantling of the Administered Price Mechanism had generated a lot of interest in the Indian petroleum sector and several transnational giants were waiting to carve out a share in the country's market, he said BPCL and HPCL were sure to get many of these bidders vying for a controlling stake.

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