Oil PSUs to Unite Un­der Sin­gle Com­mand

The Economic Times - - Front Page - San­jeev.Choud­hary@ times­group.com

The gov­ern­ment plans to merge state oil com­pa­nies to cre­ate an in­te­grated oil ma­jor that could top $100 bil­lion in mar­ket value and com­pete with global oil big­gies. “We see op­por­tu­ni­ties to strengthen our cen­tral pub­lic sec­tor en­ter­prises through con­sol­i­da­tion, merg­ers and ac­qui­si­tions. It will give them ca­pac­ity to bear higher risks, avail economies of scale, take higher in­vest­ment de­ci­sions and cre­ate more value for the stake­hold­ers,” said fi­nance min­is­ter Arun Jait­ley.

“We pro­pose to cre­ate an in­te­grated pub­lic sec­tor oil ma­jor which will be able to match the per­for­mance of in­ter­na­tional and do­mes­tic pri­vate sec­tor oil and gas com­pa­nies,” he said. ET had re­ported in July 2016 that the gov­ern­ment planned such a merger.

The top eight listed state oil firms have a mar­ket value of $108 bil­lion, which dwarfs the $ 50 bil­lion of Re­liance In­dus­tries, $70 bil­lion of Rus­sia’s Ros­neft — which is buy­ing Es­sar’s re­fin­ery — and is closer to BP’s $115 bil­lion. “In­te­grated com­pa­nies are the or­der of the day. In­te­gra­tion will strengthen our com­pa­nies which will ben­e­fit from each other’s com­pe­tence,” said oil min­is­ter Dhar­men­dra Prad­han. The process was al­ready un­der­way and in­te­gra­tion will be achieved in a fixed time frame, he said. ₹

The merger raises doubts about fu­ture role of top oil ex­ec­u­tives, but ONGC chair­man DK Sar­raf said it didn’t mat­ter if he re­mained the head of a merged en­tity. “In­di­vid­u­als are not im­por­tant. The na­tion will gain by this in­te­gra­tion,” he said. Sar­raf said a com­bined com­pany can weather va­garies of the oil cy­cle and will have higher negotiating power broad in buy­ing as­sets, crude or tech­nol­ogy. IOC chair­man B Ashok also wel­comed the move. “This will not hap­pen overnight. We will have to work on dif­fer­ent mod­els but it is the way for­ward,” he said. Mukesh Su­rana, chair­man of Hin­dus­tan Petroleum Corp, said, “In­teg ra­tion is a good con­cept. Glob­ally, oil com­pa­nies have en­tered into sev­eral M&A deals. The key is­sue is how you do it and what your ob­jec­tive is.” ICRA an­a­lyst K Ravichan­dran said the merger would cre­ate a very strong com­pany but man­ag­ing peo­ple would be a challenge. On the other hand, Ritesh Gupta, an­a­lyst at Am­bit Cap­i­tal, said the merger was a bad idea. “It will clearly de­stroy the value oil marketing com­pa­nies have built over the years. Merg­ing OMCs might make a lit­tle bit of sense but club­bing them with ONGC doesn’t,” he said.

In 2005, an of­fi­cial panel had ad­vised against merg­ing state oil firms, say­ing a dom­i­nant en­tity may not be good for competition in an en­ergy-starved coun­try.

(With in­puts from Ra­chita Prasad in Mum­bai)

Oil min­is­ter Dhar­men­dra Prad­han says cos will ben­e­fit from each other’s com­pe­tence and grow stronger through in­te­gra­tion

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