Stay on home turf, IOC told

Oil Ministry against ONGC's retail plans.

The petroleum ministry is not favourably disposed to some of the ambitious plans drawn up by state-owned oil majors. Not only is the ministry opposed to Indian Oil Corporation's (IOC's) plans of acquiring exploration and production companies abroad, it is also against the foray of Oil and Natural Gas Corporation (ONGC) into retailing.

The ministry is also critical of ONGC's plans to foray into "unrelated spheres" like electricity generation and special economic zones. However, it favours ONGC subsidiary Mangalore Refineries & Petrochemicals' entry into the transportation fuel retailing business.

"ONGC should devote half its resources to exploration and the other half should be set aside for replacing equipment and paying dividends," a senior petroleum ministry official said.

"Before IOC goes abroad, it needs to develop the capacity for it. Otherwise, anyone can take it for a ride," the official told Business Standard. The government's position had been communicated to the company informally, he added. IOC has set aside $2 billion for its foreign ventures.

"IOC is a Navratna company and its board is capable of taking independent decisions. But we are of the opinion that they lack expertise," the official said.

Officials said the ministry would make its stance clear again, when the proposal came up for clearance. Apart from the petroleum ministry, the proposal will also have be approved by the Cabinet Committee on Economic Affairs.

The government had earlier allowed ONGC to set up 600 retail outlets. The company proposes to open five outlets in the south during the course of the current financial year.

ONGC had proposed to set up ONGC Values Ltd. While the oil major would have held 49 per cent stake in the entity, the rest would have been offered to non-public sector financial institutions like ICICI Bank, IDFC and HDFC, with a ceiling of 25 per cent on each.

The proposal was turned down by the government. ONGC is now considering setting up a trust, with 50 per cent held by individuals and company employees, for its retail foray.

IOC plans to acquire up to 40 per cent in Indonesia's largest independent upstream company PT Medco Energi International. It is also evaluating the prospects of acquiring a French exploration and production company.

The government's stance has not affected IOC's plans. Last week, the company's board approved a proposal to bid for Medco. It has done the due diligence and is planning to value the company. The acquisition is estimated to cost IOC around $600 million.

In April, the IOC board had cleared the setting up of an exploration and production division and subsequently a $2 billion plan for acquiring medium-sized foreign oil and gas companies had been drawn up to make it a fully-integrated company.

The Medco stake acquisition, if it comes through, will be IOC's first upstream acquisition overseas. While financial institutions and the public hold around 15 per cent in Medco, the remaining 85 per cent is owned by New Links, a holding company.

IOC executives said one option was to acquire 40 per cent in the firm, while the other was to acquire 17 per cent from PTT Exploration and Production Company of Thailand and CSFB. A final decision on the extent of IOC's stake will be taken by the Panigoro.

The government is unhappy with the state of exploration undertaken by public sector petroleum companies and is working on a roadmap to boost exploration and production activity. The proposal to merge oil companies is part of the strategy.

The ministry pointed out that if the government's plans of merging oil companies came through, ONGC would have a marketing company like Hindustan Petroleum Corporation Ltd (HPCL) in its fold.

"They have resources at their disposal and there is no point in keeping them idle. But it does not mean that they can foray into anything and everything. They should focus on the basic activities and step up exploration," a ministry official said.

Officials said the government was also planning to put in place bidding guidelines for exploration blocks abroad as Indian companies ended up competing against each other.

"We want to put in place norms on which company will take a lead and which one will be the minority partner. Maybe, we will demarcate areas based on geography," he added.