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Oil firms’ merger will create varied entities, issues
Petroleum Minister Dharmendra Pradhan 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.
The proposal, though welcomed by industry officials, has drawn mixed reactions from analysts, who see multiple challenges in it.
“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,” Pradhan told reporters here following the budget presentation earlier last week. He elaborated that each new company would deal with aspects of the entire value chain such as exploration and production, refining and marketing.
Reviving a proposal first mooted more than a decade ago by then Petroleum Minister Mani Shankar Aiyar during the first UPA government, Finance Minister Arun Jaitley in his Budget 2017-18 said: “We propose 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.”
“We see opportunities to strengthen our CPSEs (central public sector undertakings) through consolidation, mergers and acquisitions. Possibilities of such restructuring are visible in the oil and gas sector.” Without spelling out more details about the proposed merger, Jaitley said combining them will increase their bargaining and risk-taking capacity.
It “will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for shareholders,” he said. Among the 13 state-run oil companies being considered for merger are the explorer Oil and Natural Gas Corporation (ONGC) and Oil India, oil marketers Indian Oil Corp, Bharat Petroleum, Hindustan Petroleum, Mangaluru Refinery and Petrochemicals, Chennai Petroleum and Numaligarh Refinery, and gas import and transportation utilities GAIL and Petronet LNG. “A much bigger entity will give us bigger negotiating power in almost all activities globally such as the purchase of crude, technology, R&D expertise, as well as faster decision making,” ONGC Chairman DK Sarraf said.