‘Oil Plan Aims to Cre­ate Our Own BP or Shell’

The Economic Times - - Budget: Day After -

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.

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