Merged PSU En­ergy Gi­ant to Have Global Edge: IOC Chief

The Economic Times - - Economy: Macro, Micro & More - Ra­chita.Prasad@ times­group.com

Govt plans to merge state-owned oil com­pa­nies to cre­ate an in­te­grated oil be­he­moth

GO­ING BIG The merger would help scale and con­sol­i­date our po­si­tion in the world...An in­te­grated com­pany can ab­sorb volatil­ity bet­ter

Mum­bai: The merger of state-run en­ergy com­pa­nies will pro­vide In­dia the mus­cle to ac­quire as­sets abroad and ne­go­ti­ate bet­ter, but the busi­ness model of the new en­tity thus cre­ated will be key to its suc­cess, chair­man of the coun­try’s largest oil mar­ket­ing firm said.

Fi­nance min­is­ter Arun Jait­ley in the Union Bud­get last week an­nounced a pro­posal to merge sta­te­owned oil com­pa­nies to cre­ate an in­te­grated oil be­he­moth, which could po­ten­tially top $100 bil­lion in mar­ket value and en­ter the league of global oil heavy­weights.

“En­ergy is crit­i­cal and strate­gic for the growth that In­dia as­pires for,” In­dian Oil Corp chair­man B Ashok told ET.

“Con­sol­i­da­tion would help us strengthen, leverage and en­hance our po­si­tion more strongly in the in­ter­na­tional mar­ket. This will not hap­pen overnight and we will have to work on dif­fer­ent mod­els, but it is the way for­ward.”

In­dian Oil is the top-rank­ing In­dian com­pany on the ‘For­tune 500’ list for 2016 at 161, with the other two state-run oil mar­ket­ing com­pa­nies also mak­ing it to the list.

The merged en­tity would be cat­a­pulted to the league of global ma­jors such as BP, which has a mar­ket value of $115 bil­lion. “The top rank­ing en­ergy com­pa­nies on ‘For­tune 500’ are in­te­grated play­ers. While we are on the list, in­di­vid­u­ally we are much smaller in scale. The merger would help scale and con­sol­i­date our po­si­tion in the

world,” Ashok said. “An in­te­grated com­pany can ab­sorb volatil­ity much bet­ter.”

On con­cerns that the merged en­tity may have to cut down on staff to re­duce du­pli­ca­tion and re­dun­dan­cies, Ashok said the gov­ern­ment will have to work on a model that works best to leverage the strengths of these com­pa­nies.

“The thought process for be­ing con­sol­i­dated across the value chain has been in place for a long time. IOC has be­lieved in this model and has been work­ing to­wards it. Si- mul­ta­ne­ously, we have been re­mov­ing du­pli­ca­tions in our op­er­a­tions and staff,” he said.

In 2005, an of­fi­cial panel had ad­vised against the merger of the sta­teun oil com­pa­nies, say­ing that a dom­i­nant en­tity may not be good for com­pe­ti­tion in an en­ergy-starved coun­try.

“In­dus­try has grown a lot and those con­cerns are not rel­e­vant any­more. This is the right time for such a move,” IOC chair­man said.

The top eight pub­lic sec­tor oil com­pa­nies to­gether would have a mar­ket value of $108 bil­lion, which would sur­pass the $50 bil­lion of In­dia’s Reliance In­dus­tries and that of the $70 bil­lion Rus­sian ma­jor Ros­neft, which is in­creas­ing its pres­ence in In­dia by buy­ing stake in Es­sar’s re­fin­ery.

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