Govt in mega merger mode

Merger of BPCL, HPCL with ONGC, and Oil India with IOC discussed.

Petroleum Minister Mani Shankar Aiyar today held discussions with chief executives of state-owned oil PSUs to explore the possibility of merging Bharat Betroleum and Hindustan Petroleum with Oil and Natural Gas Corporation and Oil India with Indian Oil Corporation to create two oil behemoths.

The brainstorming session was part of Aiyar's efforts to prepare India's response to the global oil challenge by unifying public sector oil firms instead of the present practice of competing with each other and working at cross purposes.

Sources said Aiyar had taken a grim view of the presence of three public sector oil marketing companies -- Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum -- vying for the same market, and more like Numaligarh Refinery, MRPL and ONGC ready to enter the market.

He is also 'disturbed' at every PSU's move to buy oil and gas fields abroad, a trend that may see Indian firms competing among themselves for the limited assets available. "For instance, the ministry feels that IOC looking at overseas drilling fields does not make sense when ONGC's core expertise is exploration," said a source.

One of the proposal is for merging about 11,000 petrol stations and 32 million tonnes per annum refining capacity of HPCL and BPCL with ONGC to create the country's largest oil producer a vertically integrated firm.

Simultaneously, oil producer Oil India and ONGC's Assam and Gujarat oil fields would be given to IOC to provide India's largest retailing firm control close to 12 million tonnes of crude oil. Sources said the merger proposal was opposed by BPCL and HPCL which wanted more freedom to enter oil and gas exploration and production to become vertically integrated companies.

Alternatively, Aiyar also looked at options of restricting companies to only their core competencies instead of oil producers getting into fuel marketing and retailers venturing into upstream business.

The petroleum ministry, sources said, was not enthused by the efforts of ONGC to get into power generation, petrochemicals and fuel retailing business. It has also not supported gas transporter GAIL India's foray into liquid hydrocarbons.

"Aiyar heard views of chief executives of ONGC, IOC, BPCL and HPCL on the possible merger and concentrating on core competencies," they said, adding the deliberations were inconclusive.

The ministry feels that nowhere in the world are there so many public sector companies in the same line of business - three (IOC, BPCL and HPCL) in fuel retailing; two (ONGC and OIL) in oil exploration and production; and two (IOC and GAIL) in petrochemicals.

Today's meeting was attended by IOC Chairman MS Ramachandran, ONGC Chairman and Managing Director Subir Raha, GAIL Chairman and Managing Director Prashanto Banerjee, BPCL Chairman and Managing Director S Behuria and HPCL Chairman and Managing Director MB Lal.