India plans to merge some of the 13 state oil firms to create an energy behemoth that can rival global giants like BP and Chevron to help meet the energy needs of the world’s third largest oil consumer.
More than 12 years after a proposal to merge oil PSUs was first mooted by the then Oil Minister Mani Shankar Aiyar, finance minister Arun Jaitley in his Budget for 2017-18 proposed 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.”
There are 13 oil PSUs ranging from upstream oil producers like ONGC and Oil India to downstream oil refining and fuel marketing firms IOC, BPCL and HPCL to gas transporter GAIL India Ltd and engineering firm Engineers India Ltd.
An idea was mooted a few months back to merge them to create a behemoth that can not just compete globally but also withstand oil price volatility by using profits the refining business make in low oil prices to make up for losses in upstream and vice versa.
Top eight listed state-owned oil and gas companies have a combined market capitalisation of about $80 billion, making it ninth largest globally. The combined entity will be larger than Rosneft of Russia and billionaire Mukesh Ambani-led Reliance Industries.
In 2015-16, all state oil firms together reported a profit of Rs 45,500 crore on revenues of Rs 9,32,000 crore. They had planned a capital expenditure of Rs 87,600 crore in the current fiscal.
The merged entity could rival the likes of Russia’s Rosneft ($60 billion in market cap) and UK’s BP Plc ($92 billion) in market value.
“We seek opportunities to strengthen our central public- sector enterprises through consolidation, mergers and acquisitions,” Jaitley told Lok Sabha while presenting the budget for the year beginning April 1. “It will give them the capacity to bear high risk, avail economies of scale, take higher investment decision and create more value for stakeholders”.
Aiyar had first mooted merger of HPCL and BPCL with ONGC and OIL with IOC to create two oil giants having interests across the energy chain in 2004.
However in September 2015, a high-level panel on recast of public sector oil firms did not favour mergers to create behemoths and instead suggested greater autonomy by transferring government shareholding in oil PSUs to a professionally managed trust.
The Advisory Committee on Synergy in Energy headed by V Krishnamurthy was of the view that mergers and consolidations worldwide occurred during times of low oil prices and were instruments of eliminating excess workforce and duplicate facilities.
That was the time when oil prices were on the rise but they have in the last two years dipped to multi-year lows.
Aiyar had also wanted subsidiaries of oil PSUs to be merged with the parent firm – like merger of Kochi refinery with BPCL and Chennai refinery with IOC.
Oil and Natural Gas Corp (ONGC) is India’s biggest oil and gas producer and the highest profit making company. Indian Oil Corp (IOC) is the country’s biggest refinery while GAIL is India’s largest gas pipeline operator.