• Government set to start talks on merging 13 state oil companies to create behemoth

    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 2.19 %, 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.  Kyle Wilber Womens Jersey

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