Ashok Sinha dared Bharat Petroleum to look beyond its master the government. His legacy will continue to take shape after he leaves
September 15, 2008, was hardly the day that one could talk business with a straight face or raise money for projects. Lehman Brothers had just turned into vapour, Merrill Lynch had lost its independence a day earlier and a full-fledged financial crisis had taken strong hold. The global financial order seemed to have ground to a halt. But Ashok Sinha, chairman and managing director of Bharat Petroleum Corporation (BPCL), had the audacity to tap the London financial markets to raise $100 million for an acquisition in Brazil. It was almost as if he had not seen the TV.
But Sinha and his teams in Mumbai and Brazil had every reason to feel the urgency. They had plodded on for nearly a year cutting through a thick Brazilian bureaucracy and a million other uncertainties to tie up a buyout of EnCana Brasil which owned ten promising deep-water blocks. It would be a major leap for the Indian refiner in its ambition to become a global oil and gas exploration company.
But there was one problem. All the hectic parleying had taken time and the deadline to pay for the deal was just 48 hours away when Lehman threw in the towel. It was doubtless the worst financial crisis in living memory but Sinha & co. weren’t going to give up after having come so close to the victory post.
They got the money; and EnCana Brasil.
Sinha’s vision to mould Bharat Petroleum, a noted refiner but not even the largest in India, into a global exploration company sounded as incongruous then as it does today. The government considers this public sector company to be one of its ‘gems’ (navratnas) and guards it accordingly. BPCL has little latitude to chart its own course despite having a turnover of Rs. 1.35 lakh crore ($28 billion). Pump prices of the fuel it produces are strictly controlled by the government keeping the company on the fringes of loss-making for the past decade. Despite recent pronouncements to free petrol prices, the government is far from yielding control of fuel pricing. BPCL, like other Indian oil giants, will continue to sell its products at often un-remunerative prices.
Companies globalise for a myriad reasons and BPCL decided to do so in order to break free. When Ashok Sinha, an electrical engineer from IIT Kanpur, took charge as chairman in 2005, hardening crude prices and falling margins on sales hemmed in BPCL. The government had just gone back on its decision to deregulate the oil market. He had been finance director and knew the numbers. It was somewhat ironic that in an organisation-wide exercise called `Project Destiny’, the 14,000 BPCL employees had decided that their aim was to double sales volumes and quadruple profits by March 2011. It was obvious to Sinha that this destiny would never be fulfilled unless the company developed revenue streams independent of government control.
Sinha sought to achieve this through a twin strategy. One, at home, he speeded up the implementation of a joint venture refinery at Bina in Madhya Pradesh to produce 120,000 barrels per day. Being a project with 26 percent participation from Oman Oil, the Bina refinery is not under the direct control of the government.
Next, Sinha drew up a more ambitious plan toward backward integration: A global presence in oil and gas exploration to be achieved over the next decade.
The Wahoo Breakthrough
The scramble for funds in London in the middle of the financial crisis was part of the second plan. EnCana Corp, one of North America’s largest natural gas companies, wanted to focus on gas and had decided to sell off its non-core assets. BPCL (through its fully owned unit Bharat Petro Resources or BPRL) had joined hands with Indian conglomerate Videocon and won the bid. The deal was unusual because of adroit negotiations that resulted in the Indians bidding for nine of the blocks, and getting the tenth free — well, almost. They paid a notional price of $1 for it. But more of this later.
They had a year to get the regulatory approvals, pay and seal the deal. As months passed, Brazilian bureaucracy proved to be tougher to cut than the infamous one back home. A strike at the regulator’s office delayed matters further.
Worse, the rules of the oil-game in the region suddenly changed. Brazil discovered huge `pre-salt’ petroleum reserves (so called because oil and gas deposits are buried several kilometres beneath the ocean floor under a layer of salt). This spurred the government to consider laws to virtually shut the door on foreign oil companies. (This would eventually lead to a law in 2009 that said state-run Petrobras must be the operator and own 30 percent in new fields.) While the situation was not as bad as the ‘resource nationalism’ seen in Russia or Venezuela, it was something that required a change of strategy by foreign companies.
As BPRL-Videocon combine struggled to get their papers in order, pressure began mounting. Some people at EnCana Brazil started questioning the wisdom of giving up the blocks up for a song. “It seemed like the deal would slip away,” says RajKumar, managing director of BPRL.
Determined to do all they could to save what they were now sure were prime blocks in a very prospective area, the BPCL folks tried the diplomatic gambit. They approached the Indian Prime Minister’s Office to help open doors in Brazil. “The Indian ambassador took up the case with the Brazilian government, and the clearances finally came through just at the deadline,’’ recalls Sinha. They managed to negotiate for 48 hours more with EnCana to raise the money. This was when Lehman happened.
Drilling Deeper
(This story appears in the 27 August, 2010 issue of Forbes India. To visit our Archives, click here.)