Petroleum Ministry hires Deloitte for oil PSU merger

The petroleum ministry has appointed consultancy firm Deloitte to work on a proposed merger of public sector companies under its administrative control. 

Finance Minister Arun Jaitley had in this year’s Budget speech proposed an integrated state-owned oil company. 

“There could be more than one integrated oil company. The idea is to insulate companies from price fluctuations. Deloitte has been asked to come up with a report in three months and an action plan for one year,” said a source close to the development. 

While Petroleum Minister Dharmendra Pradhan has left it to the companies to decide on the merger, officials said a meeting for an action plan was recently held in the Prime Minister's Office.

India has 18 state-owned petroleum companies, including Indian Oil Corporation, Hindustan Petroleum Corporation, Bharat Petroleum Corporation, Oil and Natural Gas Corporation, Oil India Ltd and GAIL.  

Merger talks are on between IOC and OIL. Ved Prakash Mahawar, director (onshore), ONGC, said recently that talks were on at the ministry for ONGC to acquire HPCL.  

Oil refiners are comfortable with low crude oil prices because the subsidy on kerosene and cooking gas remains in check. But below a certain point, oil producing companies like ONGC and OIL are affected because their prices are benchmarked to global crude oil prices.

The idea of integrating state-owned oil companies was first mooted in 2005. This February, Jaitley revived the proposal. According to the finance ministry, the move will enable oil companies to bear higher risks, acquire scale, make bigger investments and create more value for stakeholders.

“We are not new to mergers and acquisitions. It is worth looking at opportunities,” IOC Chairman B Ashok said last week.

Indian Oil Corporation has in the past taken over the Bongaigaon refinery and Indo-Burma Petroleum. Ashok also hinted that the merger of Chennai Petroleum Corporation with IOC was inevitable. 

“The acquisition of Chennai Petroleum Corporation may not be easy as the company has a stake held by National Iranian Oil Company. A merger will lead to National Iranian Oil Company company having a stake in Indian Oil Corporation. It is a complex issue,” an IOC executive said. 

RS Sharma, former ONGC chairman, said forming a holding company would be a better option for the industry. “It should be a vertical merger rather than a horizontal one. A merger between ONGC and HPCL or BPCL should happen, rather between ONGC and Oil India,” he added.