For In­te­grated Drive, ONGC may Tank Up on HPCL or BPCL

ONGC likely to pick up govt’s stake in HPCL or BPCL; no tin­ker­ing with other up­stream or down­stream cos Oil Min, Of­fi­cials on Ground Sur­vey

The Economic Times - - Front Page - Aman.Sharma@ times­group.com

New Delhi: The gov­ern­ment’s plan to cre­ate an in­te­grated oil com­pany will likely in­volve Oil and Nat­u­ral Gas Corp tak­ing over ei­ther Hin­dus­tan Pe­tro­leum Corp (HPCL) or Bharat Pe­tro­leum Corp (BPCL) but won’t re­sult in a mega merger lead­ing to the cre­ation of an in­dus­try gi­ant.

In his Fe­bru­ary 1 Bud­get speech, FM Arun Jait­ley had said the gov­ern­ment pro­poses 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”.

The merged en­tity will span the spec­trum of ac­tiv­ity from ex­plo­ration to re­tail sale, said of­fi­cials Un­changed sta­tus of all other oil cos like OIL or IOC

ONGC tak­ing con­trol of ei­ther HPCL or BPCL will cre­ate an in­te­grated oil ma­jor span­ning the whole spec­trum of ac­tiv­i­ties — who elab­o­rated on the strat­egy on con­di­tion of anonymity. “The ac­tual in­ten­tion be­hind the Bud­get an­nounce­ment is not to cre­ate one huge oil firm,” one of them said. Un­der the plan, ex­plorer ONGC will “con­trol” HPCL or BPCL, which are re­fin­ing and dis­tribu- tion com­pa­nies. “Cur­rently, HPCL and BPCL have the gov­ern­ment as the ma­jor­ity share­holder. The plan is to trans­fer the gov­ern­ment’s hold­ing to ONGC, which will be­come the hold­ing firm of one of these com­pa­nies (HPCL or BPCL),” said a per­son cited above. The gov­ern­ment does not in­tend to tin­ker around with any of the other up­stream com­pa­nies such as Oil In­dia Ltd (OIL) or down­stream ones like In­dian Oil Cor­po­ra­tion Ltd (IOC).

“Hence, this pro­posal does not re­sult in any re­duc­tion in com­pe­ti­tion or ef­fi­ciency in the oil sec­tor,” said one of the per­sons cited above. One of the key ideas be­hind the plan is to lower risk, he said.

“The world over, the largest and most suc­cess­ful oil com­pa­nies like Shell, BP and Exxon are ver­ti­cally in­te­grated,” the per­son said. “They com­bine ex­plo­ration ac­tiv­i­ties with re­fin­ing and dis­tri­bu­tion.” The logic is that when crude oil prices are high, the ex­plo­ration busi­ness does well and when they drop, the dis­tri­bu­tion busi­ness ben­e­fits, said the peo­ple cited above. “By com­bin­ing the two in a sin­gle com­pany, the over­all profit of the un­der­tak­ing be­comes more sta­ble. In­vestors ben­e­fit from re­duced vo­latil­ity of prof­its,” said an­other of­fi­cial.

In or­der to achieve the ob­jec­tive, the cen­tral gov­ern­ment plans to trans­fer its ma­jor­ity share­hold­ing in HPCL or BPCL to ONGC, said the peo­ple cited above.

These sources said a “com­plete merger” of the two en­ti­ties may take longer and the ba­sic ob­jec­tive of in­te­gra­tion can be achieved even with­out this. The Bud­get an­nounce­ment had led to in­tense spec­u­la­tion that the gov­ern­ment in­tended a grand merger of all the oil com­pa­nies to cre­ate one mam­moth en­tity. Crit­ics had flagged the var­i­ous prob­lems that could re­sult from such a merger. State-owned ONGC is the coun­try’s big­gest oil pro­ducer and one of the largest com­pa­nies in the coun­try. HPCL, a Navratna com­pany, owns and op­er­ates two ma­jor re­finer­ies in Mumbai of 6.5 mil­lion met­ric tonnes per an­num (MMTPA) ca­pac­ity and an­other in Visakhapatnam of 8.3 MMTPA ca­pac­ity be­sides own­ing and op­er­at­ing the largest lube re­fin­ery in the coun­try. In­dian Oil Cor­po­ra­tion is the na­tion’s largest re­finer and fuel re­tailer.

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