ONGC Set to Cre­ate En­ergy Gi­ant with Con­trol of HPCL

The Economic Times - - Economy: Macro, Micro & More - Aman.Sharma @times­group.com

TOP GOVT OF­FI­CIAL

The world over, the largest and most suc­cess­ful oil com­pa­nies like Shell, BP and Exxon are ver­ti­cally in­te­grated

New Delhi: Oil and Nat­u­ral Gas Cor­po­ra­tion (ONGC) will take con­trol of Hin­dus­tan Pe­tro­leum Corp (HPCL) as part of the gov­ern­ment’s plan to cre­ate an in­te­grated pub­lic sec­tor oil en­tity com­pa­ra­ble with big global oil com­pa­nies like Shell BP and Exxon, top gov­ern­ment of­fi­cials told ET.

“It is a very big de­ci­sion. A Cab­i­net note will soon be moved. The gov­ern­ment of In­dia will trans­fer its ma­jor­ity share­hold­ing (of 51.11% in HPCL) to ONGC, which will then be­come the hold­ing com­pany of HPCL,” said one of the of­fi­cials cited above. The move will stop short of a com­plete merger, which may take longer, but the pur­pose will be served with this step, said the peo­ple cited above.

ET was the first to re­port on Fe-

bru­ary 21 that the gov­ern­ment plans to in­te­grate ei­ther HPCL or Bharat Pe­tro­leum Corp. Ltd (BPCL) with ONGC in line with the Fe­bru­ary 1 bud­get an­nounce­ment 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.” ET had also re­ported that the sta­tus of all other oil com­pa­nies such as Oil In­dia Ltd

(OIL) and In­dian Oil Corp. (IOC) would re­main un­changed.

ONGC’s ex­plo­ration func­tions will be in­te­grated with HPCL’s re­fin­ing and dis­tri­bu­tion ca­pa­bil­i­ties. HPCL, which owns and op­er­ates two ma­jor re­finer­ies in Mum­bai and Visakha­p­at­nam, has In­dia's largest lu­bri­cants unit and sec­ond largest pipe­line net­work of 3,015 km apart from a vast mar­ket­ing sys­tem.

The think­ing be­hind such verti- cal in­te­gra­tion is that it will re­duce risk-high crude oil prices will boost the ex­plo­ration busi­ness and when they drop, the dis­tri­bu­tion seg­ment will ben­e­fit.

“The world over, the largest and most suc­cess­ful oil com­pa­nies like Shell, BP and Exxon, are ver­ti­cally in­te­grated," said an of­fi­cial, stress­ing that ONGC-HPCL’s earn­ings will be­come more sta­ble and in­vestors will ben­e­fit from this re­duced volatil­ity.

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