InvestorQ : Why is BPCL planning to invest a huge some of Rs12,800 crore in Brazilian oil blocks?
Aditi Sharma made post

Why is BPCL planning to invest a huge some of Rs12,800 crore in Brazilian oil blocks?

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Mahima Roy answered.
3 weeks ago
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There is a new twist to the BPCL story. From being a prime candidate for sale, BPCL is now investing heaviliy in the future, which is the good part of the story. Just about 2 months back, the government was all set to exit its 52.98% stake in BPCL. With tepid valuations dampening the plan, it has decided to invest in the company to enhance market value. On these lines, the CCEA approved an investment of $1.6 billion by Bharat Petroleum Corporation Ltd (BPCL) in a Brazilian oil block; to be jointly owned with Petrobras of Brazil.

This deal will be executed and run through Bharat Petro Resources Ltd (BPRL), a wholly-owned subsidiary of BPCL. This is actually a fairly old relationship that BPCL had and it also has an interesting history. For instance, BPCL had entered into a partnership with Videocon for taking the stake in the Brazliian oil block in 2008. With Videocon going bankrupt, BPCL took over the stake owned by Videocon to become 40% owner of the joint venture with Petrobras. The balance 60% is owned by Petrobras, which also operates the well.

For India, these investments are also of national importance as they strengthen India's energy security and help to diversify the country's crude oil supply. India has been especially vulnerable to imported inflation amidst rising crude oil priecs. This is unique to India since it relies on oil imports for 85% of its daily needs. Under these circumstances, these kind of owned resources abroad can ensure energy security for India in a big way. Of course, we have been importing from Russia, but that is more price driven temporarily.

Traditionally, India has not been sourcing too much of oil from Brazil due to the geographical distances and the costs it adds on to the fuel pricing. For India, it is oil from the Middle East and Africa that is the most preferred. However, in the last few months, Russia has emerged as a major supplier of crude to India but that is largely on account of the hefty discounts that Russia has been offering due to the stringent sanctions imposed by the US. Indian oil companies have expressed interest in sourcing more crude oil from Brazil.

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