STOP PRIVATISATION OF BPCL

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Honourable Prime Minister Mr. Narendra Modi,

A panel of secretaries on Monday, 30th Sept 2019 approved the privatisation of Bharat Petroleum Corp Ltd (BPCL) and three other PSUs — Shipping Corp of India (SCI), THDC India and Neepco. The secretaries also cleared the sale of 30 per cent of the government’s equity in Container Corp of India (Concor).

BPCL was conferred upon the "Maharatna" status in 2017 in recognition of its consistent performance for past several years. It is among the global fortune 500 companies for the last 16 years. In the last fiscal BPCL along with Indian oil and HPCL cumulatively paid Rs 8,119 crore in dividend to all shareholders, and also as dividend distribution tax to the government. The Net Profit of BPCL for the last 5 years ranges between Rs.5000 Crores to Rs.8000 crores. Therefore, it is surprising when  government is mulling selling most of its 53.3 per cent stake in Bharat Petroleum Corporation Ltd (BPCL) to a strategic partner.

There seems to be no clarity regarding the objectives of such privatisation. Instead of revamping the public sector enterprises, the entire way in which disinvestment has been undertaken gives the impression that it is an exercise to bridge the budgetary deficit. Privatisation does not necessarily lead to better economic performance. In fact, there is hardly any correlation between ownership and operational efficiency (performance). No doubt competitive markets are necessary to achieve an efficient and vigorous economy, but full-scale private ownership is not necessary for the successful operation of competitive markets.
 

One may note that the sale of real assets of large enterprises like BPCL. is likely to weaken the very base of the economy by creating infrastructural deficiency. If the new owners of these companies enjoy the discretion of using the resources as they deem fit, this will virtually amount to giving control over the vast resources at throwaway prices.

Ours is a mixed economy. In the name of liberalisation, private sector is being pampered. Market principles are being allowed to play freely. What is needed at this juncture is the de-bureaucratisation of the public sector, instead of privatisation. Public sector industries in India are plagued with inefficiencies due to excessive bureaucratisation. Instead of removing the ills of the public sector industries, the Government is going for privatisation. To achieve the goals of social justice public sector investment has to be stepped up.

Privatisation is an abuse of the 'public interest’. The public utilities were nationalised in the first place in the public interest. The utilities are products and services that are essential to all members of the general public. A private company in charge of one of these industries, interested only in profit, is likely to close down or marginalize unprofitable elements of its operations. As nationalised companies, unprofitable but essential services continue through cross-subsidisation; unprofitable services being subsidised  by the profitable services.

Privatisation encourages creation of natural ‘monopolies’. Competition in industries that are natural monopolies wastes resources. By privatizing monopolies the government simply transforms an inefficient state run monopoly into a slightly more efficient but privately run monopoly with no competitive pressures. The whole point of privatisation was to allow competition to occur.
Privatisation creates the problem of ‘externalities’. Unfortunately, oil companies create negative externalities (via pollution, spoiling the environment, etc.) It can be argued that as public sector companies, the government can regulate output and make sure that it is at the socially optimal level. In the private sector, maximisation of profit is the only concern, so a socially damaging level of externalities will occur.
Privatisation fails to take benefit of loss of economies of scale. One of the major advantages of nationalised industries is that their sheer size allows them to take advantage of economies of scale. Privatisation normally involves the break-up of a large entity into many smaller ones. These smaller units will not be able to take advantage of economies of scale in the way that a PSU could in the past.
One can argue that the increasing inequality since 1990 is, in part, due to privatisation. The government was selling off state assets (owned by everyone) to a wealthier subset of the population, thereby increasing the gap between the rich and the poor and those at the top end have got ridiculously wealthy.

Privatisation forces the new private companies to be efficient, or at least find some way of reducing their costs in order to make a profit given the strict pricing formulae used by the regulators. By far the most popular way of cutting costs for these firms was to shed labour in large quantities. Productivity definitely rose in these industries, but was it due to increased efficiency via improved management, etc., or just a similar output being produced by fewer workers?

It is important to realize that privatisation is not a Panacea for the ills of the public sector. In countries where market functions poorly and Enterprises are still vulnerable to arbitrary government edicts, Transferring ownership to the private sector is unlikely to achieve much. It merely transfers the ownership of rents from the public to the private sector.

 Similarly, creating private monopolies without an effective system of monitoring and controls opens up the danger of exploitation of consumers.

Indeed, changing the culture by providing adequate training for new entrepreneurs,  or ensuring a competitive environment is probably more significant than changing ownership and if the enterprise is still a Monopoly after privatisation, as is often the case with oil industries, it must be subject to suitable controls, otherwise inefficiencies and Monopoly power will merely be transferred to the private sector, with the costs being borne by consumers or monopolistic exploitation by efficient private owners replaces the inefficiency of public ownership.

The oil industry is far too important for the economic development of the nation: it may not be correct to leave its control in the hands of private companies.

The employees stand to lose many benefits they are getting today working for an oil PSU. After privatization, their job security will be at stake, service conditions will change, salaries will be affected and attrition will be inevitable. Permanent workers will be replaced with casual contract labour for profitability. The contract workers will be exploited. Development of Human capital will be curtailed.  Reservation policies will not be adhered to. Thus social cause will be of least priority, unemployment and corruption will be on the rise. “Profitability at any cost” will be the new mantra for the owners rather than the welfare of the public at large.

After privatisation the Corporate social responsibilities which the PSU's used to fulfill cannot be ensured. The Pradhan Mantri Ujjwala Yojana which has benefitted crores of citizens will come to a standstill. The subsidies given by the government to the farmers and to the weaker sections will be stopped and the gap between rich and poor will widen. Petrol and Gas being of strategic importance to the country and its security, handing over its control to a private entity will be a risk during war like situation.

Therefore, for all the above reasons I request you to have a rethink over the Privatisation of the "Maharatna" company  BPCL.