Millennium Post

OilMin wants BP to furnish bank guarantee

The Oil Ministry wants UK’s BP plc to furnish a bank guarantee and an undertaking that it will meet the minimum investment requirement for getting a licence to retail jet fuel (ATF) to airlines in India.

The ministry, which had in March rejected BP’s application to sell ATF on the ground that its investment does not qualify for a retailing licence, says the Europe’s second-largest oil company can still get the licence provided it meets the eligibility criteria, a ministry official said. BP Exploration (Alpha) Ltd, a wholly owned subsidiary of BP plc, had on June 11, 2014 submitted an application for authorisation to market aviation turbine fuel (ATF) claiming to have invested $477 million in the country.

The Ministry rejecting the application said only $171 million of the claimed investment was capital expenditure and the rest operating expenditure. For a licence to retail auto fuels petrol, diesel and ATF, a company should have invested a minimum of Rs 2,000 crore in exploration or production, refining, pipeline or terminals leading to additionality to the existing assets or creation of new assets in the eligible activities. BP’s $171 million investment was just over half of the investment threshold.

“A commitment to make the remaining investment can be considered for giving the ATF licence. Besides an undertaking or an agreement to make the remainder of the investment, BP will also have to furnish a bank guarantee equivalent to the amount it has to invest to reach the threshold, will also have to be furnished,” the official said. 

The bank guarantee will be encashed in case BP defaults on its promise, he said. BP had in its application stated that out of the $477 million, $259 million was capital investment. Besides, another $2.3 billion is planned to be invested most in exploring and production oil and gas from eastern offshore.The official said the ministry sought an opinion of the technical arm, the Directorate General of Hydrocarbons. DGH reported that BP’s share of expenditure was $508 million between 2011-12 and 2013-14, of which the capital expenditure (capex) component and operational expenditure (opex) component was $171 million and $337 million respectively. BP’s $7.2 billion spending in buying 30 per cent stake in 21 exploration blocks of Reliance Industries is not being considered as capital investment.

BP spokesperson had previously stated that it has been “continuously engaging with the Ministry regarding the licensing application and we are confident of meeting the requirements.” 
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