Oil PSUs to Unite Under Single Command
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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