Government plans on merging 13 state oil companies to create behemoth

[Star Wars]

http://economictimes.indiatimes.com...s-to-create-behemoth/articleshow/53371857.cms

NEW DELHI: The government is set to start consultations for an ambitious plan to merge 13 state oil firms to create a giant corporation whose revenue dwarfs global energy major Chevron which competes with US conglomerate General Electric in the Fortune-500 ranking.

The Cabinet Secretariat has referred the idea of the integrated giant, which would also absorb various institutions related to safety, development and analysis, to the oil ministry, sources familiar with the development told ET.

Following this, the oil ministry has begun the process of evaluating the prospects of creating the conglomerate, which will have a bigger market value than Russian state oil giant Rosneft and India's Reliance Industries Ltd, sources said. It plans to consult all stakeholders including the state firms that may be combined to create the mega corporation that will be the country's No. 1 in turnover, net profit, capital expenditure and market capitalisation, they said.

The oil ministry declined comment for the story.

A similar proposal was considered more than a decade ago. But the government in July 2005 said that the official committee that studied the matter felt that a merger or formation of the holding company "may not be advisable for the present".

Oil and Natural Gas Corporation (ONGC), the top oil producer and one of the largest companies in the country, leads the pack of 13 state oil companies that are being considered for the merger. Other companies include Indian Oil Corporation, the nation's largest refiner and fuel retailer, Bharat Petroleum CorporationBSE 1.54 %, Hindustan Petroleum, GAIL, Mangalore Refinery and Petrochemicals (MRPL), Chennai Petroleum, Numaligarh Refinery and Oil India.

A consolidated entity could rival the likes of Russia's Rosneft ($55 billion in market cap) and UK's BP Plc ($112 billion) in market value and financial power.

The top six listed Indian state oil firms have a market value of $77 billion. In 2015-16, all state oil firms together reported a profit of Rs 45,500 crore on a revenue of Rs 9,32,000 crore. In the current fiscal year, they have planned a capital expenditure of Rs 87,600 crore.

The government is also evaluating if the consolidated entity can include all non-corporate government bodies in the oil sector such as Oil Industry Development Board (OIDB), Petroleum Planning and Analysis Cell (PPAC) and Petroleum Conservation Research Association.

A powerful integrated company would have the muscle to consider proposals like a significant stake in Rosneft.

Oil minister Dharmendra Pradhan recently said Indian state firms were considering a stake in the company that pumps more oil than Exxon.

The NDA government under AB Vajpayee and the UPA government in its first term had seriously explored the possibility of merging state oil companies or reorganising them in fewer units to give them heft and efficiency that would help them compete globally.

In 2005, the government had also appointed a panel led by V Krishnamurthy, which advised against merging the state oil firms, arguing the dominance of a mega entity may not be good for competition in an energy-starved economy and that there were several examples of smaller specialist firms doing better. It also argued that globally, less than a third mergers succeeded in enhancing shareholder value mainly due to their inability to manage employees.

The option of cutting jobs to slash costs mostly undertaken by private players after mergers is not easily available to state firms where lay offs have big political fallouts. And it requires greater political will and smart manoeuvring to offset that. Moreover, the competing interests and ambitions of top leaders and diverse cultures at companies also obstruct a smooth merger.

In the last decade since the merger talks were buried, state oil firms have also changed in character, growing in size and pushing for vertical integration. Refiners like Indian Oil, HPCL and BPCL have acquired several exploration and production assets in India and overseas while ONGC has enhanced presence in refinery and petrochemicals.

 

[Nilgiri]

You beat me to it as usual bhai. Too quick yaar

Let me be useful and tag people.

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[baajey]

forgive my ignorance, what will be the positive/negative outcome of this potential behemoth ?

 

[Nilgiri]

forgive my ignorance, what will be the positive/negative outcome of this potential behemoth ?

One word (well 3 really): Economies of scale

http://www.investopedia.com/articles/03/012703.asp

Pros: Greater consolidation of resources (leads to better raising of internal capital for expansion, more resilient and stable cash flow and ability to achieve discounts on production leading to more efficiency and profitability).

Cons: Still govt owned/controlled (if no IPO follows for the resulting behemoth) and thus the continuation of an internal bureaucracy and taxpayer financed corruption....but on a massive scale so hedging is reduced for taxpayer.

But given the oil PSUs like ONGC are generally decently managed compared to other sectors...I think the pros outweigh the cons considerably....esp if NDA can put in competent leaders and managers at all levels....and have a proper internal regulatory mechanism specific to just this company...designed and optimised as needed.

 

[MKC]

forgive my ignorance, what will be the positive/negative outcome of this potential behemoth ?

One word (well 3 really): Economies of scale

http://www.investopedia.com/articles/03/012703.asp

Pros: Greater consolidation of resources (leads to better raising of internal capital for expansion, more resilient and stable cash flow and ability to achieve discounts on production leading to more efficiency and profitability).

Cons: Still govt owned/controlled (if no IPO follows for the resulting behemoth) and thus the continuation of an internal bureaucracy and taxpayer financed corruption....but on a massive scale so hedging is reduced for taxpayer.

But given the oil PSUs like ONGC are generally decently managed compared to other sectors...I think the pros outweigh the cons considerably....esp if NDA can put in competent leaders and managers at all levels....and have a proper internal regulatory mechanism specific to just this company...designed and optimised as needed.

I think there must be a company which can compete globally.
Small can be merged.
But I think small banks should be merged before oil companies., If not some than at least SBI should merge all associate banks.
Small banks provide service in a limited area.

 

[Local_Legend]

Good move but yet to see how monopoly effects the market. All these days , all central govts used to say that they have given autonomous power to oil companies to decide the price. Oil companies used to say that the discounted price made them in debt. All state governments curse central govt for price hike while most of the state tax on a litter of fuel is greater than what central govt is charging !

On a side note , I wish to say that all major nations in the world switching to alternate energy. We are also gaining our momentum .

Like US made some strict rules on fuel hungry cars and SUVs, we too have to impliment some laws to reduce the thirsty engines to hit the road.
We can't blame the cars or the car owners for owning a car with less mileage , there should be proper roads and overbridges to ensure smooth flow of traffic. Most of the fuel goes staying vibrated on red light singnals .

It's obvious that many of the GCC countries fear that their oil production will end soon . Thus they limit output and creates demand to gain high profit. So practicaly we have to face the price hike for fuel and gas more often.

We have to increase our fuel reserves to stabilise fuel prices inside the country despite the changes in international market. The current subsidy policy can still be utilised for this situation and creates a stable fuel price.
Transportation is the key factor of business and it directly and indirectly affects and effete rs our life and economy. Stable fuel price means stable transportation cost ( exception of spare part cost , driver Bata etc ) means stebelity in economy.

If this single organisation can make the fuel price stable , APJs vision 2020 won't be just a dream !