ONGC-HPCL deal: Govt to dilute stake via holding company mechanism

Opting the holding company mechanism, the government is likely to dilute its 51.11 per cent stake in the state-owned oil and natural gas company, Hindustan Petroleum Corporation Limited (HPCL), selling it to Oil and Natural Gas Corporation (ONGC). Thereby making HPCL a subsidiary of ONGC.  

As the government will be diluting its stakes in HPCL to ONGC, a public-sector entity, the move is not being viewed as a fund-raising attempt but a consolidation in the petroleum sector.

The deal will result into the emergence of an energy major by integrating ONGC’s rich exploration and production capacity and HPCL’s expert refining and retailing potential.           

The holding company approach has been embraced by the government as it does not want to lose its control over the company’s management, as the company belongs to a strategic sector.

The minister of state for Petroleum and Natural Gas, Dharmendra Pradhan has been emphasizing that the merger will not dilute HPCL’s identity, thus, not resulting in the spurt of any human resources issues.  

The merger deal is in its final stage of completion with the nodal ministry and the Finance Ministry’s Department of Investment and Public Asset Management working on the cabinet note. The deal will require the cabinet’s approval and further the approval of ONGC’s board of directors.