he grand plan to merge state oil companies will be executed in a time-bound manner but the outcome may not be one giant company that absorbs all firms. Each new entity will straddle the entire value chain — from exploration & production to refining and marketing, oil minister Dharmendra Pradhan said. In an interview with ET, he said the government would leave it to the companies to pick their match instead of micro-managing the commercial aspects of the deal. Edited excerpts:
What is the idea behind proposing a merger of state oil companies?
Their bargaining and risk-taking capacity will increase. The industry is changing very fast. Merger and acquisition is the buzzword. Look at all oil majors, they are diversifying, synergising and integrating themselves.
So you expect Indian companies to get into the league of BP and Shell?
Will the merger result in one giant company?
It will not be one company. It will not be wise to put all eggs in one basket. There will be multiple companies. But all these will be integrated (with E&P, refinery and marketing in each company). The government will not micro manage (the merger). Its role is to create policy, to facilitate that (merger). Who will merge with whom, who will acquire whom is up to the company. Their boards will take decision.
Besides obtaining size and financial firepower, what is the kind of ambition we have for the oil firms?
There are two things. One is to fortify the position of Indian players in the domestic market. Foreign players are welcome but Indian companies should not lose out. They should compete, upgrade themselves. Second, Indian companies should also be able to enhance their presence in the global market. Our consortium of state oil companies has done a good deal in Russia (acquisition of stakes in Vankor fields). Had Oil India or BPRL or Indian Oil tried that alone, they may not have been able to do such a deal.
When will the merger start?
It has already started. The FM’s statement in the Budget is not a knee-jerk statement. It’s well thought out. It will happen in a time-bound manner.
All oil companies have different culture and multiple stakeholders. Mergers are not always easy…
These are no big issues. No company is making a loss. There is heartburn when a loss-making company is purchased. There will be no heartburn if a profit-making company acquires another profit-making company. The merger will only enhance their competitiveness.
Many CEOs and CFOs will lose jobs. Will the managements let the merger happen?
These are government companies. How will they deviate from the government policy. And then, instead of 6 directors, there can be 12 directors in a company (to accommodate more people). Is it an issue? A bigger company will offer bigger opportunity.
Customs duty on LNG has been halved to 2.5%. This can help boost gas consumption…
Yes. The strategy is to create more consumption. This is a big incentive.
The government will build two more strategic petroleum reserves. How much will it invest?
It would take Rs 10,000 crore. It can get completed in three to four years.
Has any policy framework been finalised for private players?
We will keep a provision for the private sector and if someone shows interest we will allow him to work on this. There are two things: some people will be interested in long-term investments, others will be interested in using the reserves to store crude. Right now, we are seeking private players to use the three ready facilities. Abu Dhabi National Oil Company (ADNOC) and some Indian companies have shown interest.
What are the terms for ADNOC which has agreed to partly fill one of the reserves that’s ready?
There is a broader agreement and terms are still being finalized.
Does the government plan to cut excise duty on petrol and diesel since prices have risen sharply in the past few months?
There is no need right now. We expect prices to stay in the $55-60/barrel range, and as long as prices stay there, a cut in duty won’t be necessary. Ronnie Stanley Authentic Jersey