The acquisition of the central government’s majority stake in Hindustan Petroleum by state-run explorer ONGC is the more effective and smoother way of merging these two entities, which are in two different segments of the business, according to a concerned official here.
The Union Cabinet on Wednesday gave its in-principle approval to the merger of state-run explorer Oil and Natural Gas Corp (ONGC) and oil marketer Hindustan Petroleum Corp Ltd (HPCL), official sources said here.
The Cabinet approved the sale of the government’s stake in HPCL to ONGC. Under the arrangement, ONGC will not have to make an open offer after buying the 51.11 per cent government stake in HPCL, the sources added.
“In the acquisition mode, the cultural issues between the companies are easier to resolve,” HPCL Chairman and Managing Director M.K. Surana told the BTVi news channel.
Because HPCL and ONGC are focused on two different lines of business…while ONGC is upstream in exploration, HPCL is in refining and marketing, so there is no clash of business or clash in operation,” he said.
Presenting the union Budget 2017-18 in February, Finance Minister Arun Jaitley had proposed the setting up of an integrated oil company by merger of upstream and downstream entities.
“We propose to create an integrated public sector oil major which will be able to match the performance of international and domestic private sector oil and gas companies,” Jaitley said.
Following the Budget announcement, US rating agency Fitch Ratings had said that the proposed merger of the oil and gas companies would face significant execution challenges in managing integration of employees, addressing overcapacity in the merged entity and getting support for the merger from private shareholders.
Fitch said there would be considerable difficulties involved in merging a number of entities “with differing structures, operational systems and cultures.”
The proposal was first mooted more than a decade ago by then Petroleum Minister Mani Shankar Aiyar during the first UPA government.
ONGC Chairman D.K.Sarraf told reporters here on Wednesday that the HPCL board will continue to be in place, while it will be listed as a subsidiary of ONGC post the merger.
He also said that a committee of ministers will oversee the merger process which is likely to be completed within this financial year.
Petroleum Minister Dharmendra Pradhan had earlier clarified that the government’s intent to merge state-run oil companies into a single entity will actually mean creation of multiple entities.
“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,” Pradhan told reporters here following the Budget announcement.
He elaborated that each new company would deal with aspects of the entire value chain such as exploration and production, refining and marketing.