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Government looking at creating 2-3 integrated oil, gas units

New Delhi: Towards realising a proposal contained in the Union Budget for 2017-18 for merging state-run oil and gas companies into a single entity, the government is looking at creating two to three integrated units according to an energy expert here.

Representational image. Reuters

Representational image. Reuters

"The government seems to be moving in the direction of one ONGC (Oil and Natural Gas Corp)-led integrated player. Indian Oil Corp (IOC) can be the other integrated player. GAIL should be encouraged to be the integrated player in the gas segment," Narendra Taneja told BTVi in an interview.

Following Finance Minister Arun Jaitley's budget proposal in February of a merger, reports said explorer ONGC may acquire state-run fuel refiner HPCL for about Rs 44,000 crore.

"The idea is to strengthen the balance sheet of ONGC, where it has to compete with global oil giants. With this integration ONGC will become a $100 billion company," Taneja said.

The government thinking is that a much bigger entity will give bigger negotiating power in activities globally such as the purchase of crude, technology, R&D expertise, as well as faster decision making and economies of scale.

Petroleum Minister Dharmendra Pradhan has clarified that Budget 2017-18's bare announcement of the government intent to merge state-run oil companies into a single entity will actually mean creation of multiple entities.

"If the government goes for the merger of their balance sheets, it will be a good move. But HPCL, being very different in working culture from ONGC, should be allowed autonomy to maintain its own culture," Taneja said.

The American rating Fitch has said in recent report in this regard that there would be considerable difficulties involved in merging a number of entities "with differing structures, operational systems, and cultures".

"ONGC would be in a better position to help HPCL, so that the latter becomes an asset, and not a drag... So that they can then go on to acquire integrated assets abroad ranging from upstream to downstream companies," the expert said.

"Where the world over, downstream companies are facing challenges, ONGC, with its strong fundamentals, would be better able to mobilise funds for HPCL," he added.

Taneja underlined that such a merger would benefit minority stakeholders.

"First focus should be on protecting the interest of minority stakeholders. Following that, the consumers interests should be safeguarded," he said.

The creation of two large vertically integrated oil companies would also mean limiting the choice for consumers of fuel to two companies only.

Updated Date: Mar 01, 2017 15:10 PM

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