More room likely for FDI in refineries

NEW DELHI: Foreign investment in the petroleum sector is getting a dose of liberalisation when the FDI guidelines are revised next month. Not only is the government planning to formally raise the cap for FDI in public sector refineries to 49%, the mandatory clause that foreign investors in petroleum companies have to dilute 26% within five years of making investments is likely to be withdrawn.

At present, foreign companies can hold up to 26% in public sector oil companies. For private sector oil companies, the FDI limit is 100%. The stake held by the foreign investor, however, has to be diluted in five years. Last year, the department of industrial policy and promotion (DIPP) had unsuccessfully tried to persuade the petroleum ministry to revoke the clause.

This time, the petroleum ministry seems to have come around and was likely to agree to the dilution of the clause. “After the discussions that we have had with the petroleum ministry so far, it seems likely that the compulsory requirement for dilution of foreign stake will be removed,” an official said.

The DIPP, meanwhile, is considering the petroleum ministry’s proposal of increasing FDI cap in government-owned refineries to 49% from existing 26%. The need for increasing the cap was felt when the government decided to allow LN Mittal’s Mittal Investment to buy 49% stake in the Bhatinda refinery of public sector oil company Hindustan Petroleum Corporation.

The finance ministry had then recommended that instead of relaxing cap on a case-to-case basis, the cap should be increased across the board for all foreign companies wanting to invest in PSU refineries.

FDI guidelines are revised by DIPP from time to time. Last year, a comprehensive review was carried out and the department wants to go through a similar liberalisation exercise every year.