Govt to create a global giant by merging oil PSUs

After more than a decade of debate, the government has finally waved a green flag for creating entities with global scale by merging public sector oil firms.

According to reports, the Oil Minister Dharmendra Pradhan said, "The Budget has laid the policy. Integration is the need of the hour. Globally, M&A (mergers and acquisitions) is the trend in the oil industry. With the policy in place, companies will chalk out mergers and acquisitions in accordance to their strength and weaknesses. We will see M&A activities in the public sector oil industry in coming days."

However, petrol pumps run by state-run fuel retailers will retain their brand colours. It will be the smaller and standalone ventures that will be merged to fit the missing links in the hydrocarbons value chain of each brand.

GAIL chairman B C Tripathi added, "The proposal will provide scale and muscle, which can be leveraged in the global market." Meanwhile, ONGC chairman D K Sarraf said the new entity could have a market capitalisation of about USD 80-90 billion and compete with global giants on its own.

A merger plan involving-IOC, ONGC, BPCL, HPCL and GAIL was first tossed around informally during the Atal Bihari Vajpayee government's tenure when Ram Naik was the oil minister. Subsequently, Mani Shankar Aiyar revived the plan during the UPA-I regime. But in September 2015, a panel on recast of PSU oil companies did not favour mergers, and instead suggested greater autonomy by transferring government shareholding to a professionally managed trust. The Advisory Committee on Synergy in Energy, headed by V Krishnamurthy, said M&A worldwide occurred during times of low oil prices and were instruments of eliminating excess workforce and duplicate facilities.

There are 13 oil PSUs at present. The top eight listed PSUs have a combined market cap of USD 80 billion, and a merged entity would become the ninth largest globally.