The merger of state-owned oil firms could create synergy and boost efficiency, and so, the idea is worth deliberating, feels petroleum & natural gas minister Dharmendra Pradhan. “Both ONGC and OIL (the exploration companies) are taking a hit on profits. The issue had recently been flagged by a director of one of the PSUs that it was in the interest of the E&P firms to get merged with the oil marketing companies. There is nothing wrong in discussing the issue within the ministry,” he said in Kolkata.
The proposal was, in fact, mooted by the country’s largest oil and gas exploration firm, ONGC, with a view to creating a mammoth firm which will bring upstream, downstream, transmission and engineering businesses under one umbrella. Though the idea is in its initial stages and any formal consultation between the companies is yet to begin, the ministry is ‘willing’ to deliberate on the proposal.
A top official at the oil ministry told FE that it’s indeed a ‘unique thinking’ and the government is open to discuss it, if it helps the country move towards energy security.
“The ministry would not interfere. It is for the companies to decide if they want to merge into one giant entity…” he said.
Currently, the government-owned energy firms are smaller in size compared to their global peers. For instance, ONGC’s market capitalisation stood at $28.18 billion on Friday, while it reported turnover of $19.77 billion in the last fiscal.
Similarly, IOC has market capitalisation of $19.79 billion and it reported turnover of $54.19 billion last year (See graphic).
On the other hand, global giants such as Netherlands’s Shell has m-cap of $213.82 billion, France’s Total has $117.90 billion and UK’s BP has $106.41 billion. This helps them take high risk and expand to new geographies to find hydrocarbon, process it and earn profits.
“The proposed merger of all India’s oil PSUs is humungous by any measure. It has the potential to create a behemoth with global scale and financial strength to stand among the largest in the hydrocarbon sector globally. It could well help achieve economies of scale, bring in efficiencies and acquire foreign oil equity with an eye on India’s energy security,” said Kalpana Jain, partner, Deloitte in India.