While prices of oil stocks climbed up as union finance minister Arun Jaitley in Budget announced creation of a single oil & gas company through merger of the existing state-run oil and gas PSUs, experts feel that this can lower the prices of petroleum products by at least 5% since it will cut down on the overhead expenditure as well as on the operating capital.
While Oil and Natural Gas Corporation (ONGC), one of the largest companies in the country will lead the pack of 13 state oil companies that are being considered for the merger, the consolidated entity could rival the likes of Russia’s Rosneft and UK’s BP, both of which have huge financial power.
According to T K Chatterjee, a project management consultant, a company like the Indian Oil Corporation maintains a highly uncompetitive executive to workmen ratio of 1:1.35, which bears a huge overhead cost.
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Besides, the merger is expected to enable the creation of a single oil marketing company, which will also lower the burden of operating capital. However, a merger of the existing refineries with the marketing companies is the first requirement because the separation has been artificially made.
Thereafter, those separate single entities could be transformed into a single conglomerate, Chatterjee said, adding that he has drawn attention of the successive governments on the issue since 2012.
According to Chatterjee, the merger could well absorb a part of the under recovery reported but the entire under recovery could turn into surplus if an alternative pricing formula was adopted.
However, the decision of a merger could be the first step towards adopting an alternative pricing formula, according to economist Dipankar Dasgupta.
The Cabinet Secretariat had referred the idea of integrating the oil and gas companies last year and the oil ministry has begun the process of evaluating the prospects of creating a conglomerate, which will have a bigger market value than Russian state oil giant Rosneft and India’s Reliance Industries.