Security clearances should not jeopardize BPCL deal, says Govt; to considered financial bids of only security cleared bidders

Highlighting the rationale behind the essential need of security clearances, the core group observed, “Important, especially in a current geopolitical context, to have security clearance after 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 core group was formed on March 21, 2016, to fast-track strategic disinvestment of central public sector enterprises (CPSEs) and is chaired by the cabinet secretary. The members of the group include top officials from ministries of law, finance, corporate affairs petroleum, the department of investment and public asset management (DIPAM) and the NITI Aayog.

The government, as per its disinvestment strategy plans to sell its entire 52.98 percent stake in India's second-largest fuel retailer and third-biggest oil refiner - BPCL. The preliminary expressions of interest (PIM) or EoIs are due on September 30, which will be followed by qualified bidders being asked to submit financial or price bids.

The group of secretaries, according to sources, has also further added that the "entire bidding process will be jeopardized as valuation of the company would be in the public domain if security clearance would be denied to the declared winning bidder. Security clearance prior to the opening of the financial bid is a must.”

The worry on the security side of the government is indirect Chinese participation and thus, the group deliberating on the issue added that “In the changed geopolitical scenario, it is necessary to be cautious. BPCL sale in the current financial year is crucial for the government to achieve its disinvestment target of Rs 2.10 lakh crore".

“Security clearance of only H1 bidder after opening the financial bid may be too risky for the strategic disinvestment case as any non-clearance from security angle may jeopardize the long-drawn process as bids would have been opened and the price would have been discovered,” sources added quoting the view of the core group of secretaries, which is understood to have met on August 20 to discuss this matter in detail.

The bidders have also been asked to simultaneously obtain security clearances along with their financial bids so that if the highest bidder (H1) bidder fails to obtain a security clearance, the next highest bidder having security clearance can get the deal on the condition of matching the amount bid by the winner.  If the winning bidder forms a special purpose vehicle (SPV) to sign a share purchase agreement (SPA), security clearance of all entities involved in the SPA would also be required, sources added.

An immediate benefit for the buyer of BPCL, according to experts, is that BPCL will give the acquirer ready access to 15.33 percent of India's oil refining limit and 22 percent market share of the world's fastest-growing fuel market.

Meanwhile, the Department of Investment and Public Asset Management (DIPAM) on Saturday informed prospective bidders to obtain security clearances while submitting their financial bids.

The Union Cabinet had approved the sale of the government's entire 52.98 percent stake in BPCL in November 2019. The government invited expression of interest (EoI) from prospective buyers on March 7, 2020. But, the disinvestment of the company could not take place in 2019-20 as the last date for submission of EoI was May 2, 2020. This deadline was first extended to June 13, then to July 31 and finally to September 30.