‘Oil Plan Aims to Create Our Own BP or Shell’
The grand plan to merge state oil companies will be executed in a time-bound manner but the outcome may not be one giant company that absorbs all the existing state-run firms. Each new entity will straddle the entire value chain from exploration & production to refining and marketing, oil minister Dharmendra Pradhan said. In an interview with Sanjeev Choudhary, he also said the government would leave it to the companies to pick their match instead of micro-managing the commercial aspects of the deal. Edited excerpts:
What is the idea behind proposing a merger of state oil companies? Their (oil companies’) bargaining capacity will increase, their risktaking capacity will increase in many ways (by merger). The oil industry is changing very fast. The merger and acquisition is the buzzword of the industry now. You look at all oil majors, they are diversifying, they are synergising themselves, they are integrating themselves.
So, do you expect Indian companies to get into the league of BP and Shell? Yes, exactly.
Will the merger result in just one giant company? It will not be one company. It will not be wise to put all eggs in one basket. There will be multiple companies. But all these will be integrated (with E&P, refinery and marketing in each company). The government will not micro-manage (the merger). The government’s role is to create policy, to facilitate that (merger). Who will merge with whom, who will acquire whom is up to the company. Their boards will take decision.
Besides obtaining the size and the financial firepower that comes with it, what is the kind of ambition that we have for our oil companies? There are two things. One is to fortify the position of Indian players in our own domestic market. Foreign players are welcome but Indian companies should not lose out. They should compete, they should upgrade themselves. Second, Indian companies should also be able to enhance their presence in the global market. Our consortium of state oil companies have done a good deal in Russia (acquisition of stakes in Vankor fields). Had Oil India or BPRL or Indian Oil tried that alone, they may not have been able to do such a deal.
When will the process of merger start and conclude? It has already started. The FM’s statement in the Budget is not a knee-jerk statement. It’s well thought out. It will happen in a timebound manner.
All these oil companies have different culture and multiple stakeholders. Mergers are not always easy. These are no big issues. No compa- ny is making a loss. There is heart burn when a loss-making company is purchased. There will be no heartburn if a profit-making company acquires another profit making company. All our companies make profit. The merger will only enhance their competitiveness. A company with good culture will probably improve the culture of another company.
There are tens of thousands of employees in these companies. Then there are employee unions whose powers can get diluted in a merger. Those are small issues. Their power will increase in an integrated company.
Many CEOs and CFOs will lose their jobs. So, do you think the top management of these companies will let the merger happen? These are government companies. How will they deviate from the government policy? They are governed by government policy. And then, instead of six directors, there can be 12 directors in a company (to accommodate more people). Is it an issue? A bigger company will offer bigger opportunity.
The government has halved customs duty on liquefied natural gas (LNG) to 2.5%. Can this help boost gas consumption in the country? Yes. The strategy is to create more consumption. This is a very big incentive.
The government will build two more strategic petroleum reserves. How much investment will go into building these and what’s the timeline? It would take .₹ 10,000 crore. It can get completed in 3-4 years.
Is there any policy framework that the government has finalized for building the new strategic reserves by private players? We will keep a provision for the private sector and if someone shows interest we will allow him to work on this. There are two things: some people will be interested in putting in long term investment in building the reserve, others will be interested in using the reserves to store crude. Right now, we are seeking private players to use the three ready facilities. Abu Dhabi National Oil Company (ADNOC) and some Indian companies have shown interest in this.
What are the terms for ADNOC which has agreed to partly fill one of the reserves that’s ready? There is a broader agreement and terms are still being finalised.
Does the government plan to cut excise duty on petrol and diesel since prices have sharply risen in the past few months? There is no need to cut excise duty right now. We expect prices to stay in the $55-60/barrel range, and as long as prices stay there, a cut in duty won’t be necessary.