Teething issues remain for Hindustan Petroleum and ONGC merger

Purchase of government stake in ONGC leaves firm with tight cash positiongov

Public sector undertakings (PSUs) Oil and Natural Gas Corporation (ONGC) and Hindustan Petroleum Corporation (HPCL) have been developing synergies since the former bought the government stake in HPCL in a Rs 36,000-crore deal over three years ago.

Unresolved issues, however, continue to remain with the two PSUs, which work under the administrative control of the Union Ministry of Petroleum and Natural Gas.

According to officials, the ONGC management is unhappy because the purchase of the government stake in HPCL has left the oil exploration major with a tight cash position and, despite holding a controlling stake in HPCL, it has no managerial control of the company.

“The Centre, through the Public Enterprises Selection Board (PESB), continues to recommend appointments to senior positions in HPCL without consulting ONGC,” said an official.

Besides, ONGC wanted the offices of HPCL chairman and managing director (CMD) to be in different hands, with the former going to the ONGC head.

The ONGC group follows this structure for all its group companies.

This has been a point of contention between HPCL and ONGC, but it was amicably settled. “HPCL CMD M K Surana was senior to ONGC’s then CMD Shashi Shanker. So the exploration firm relented on the demand for having its chairman as the head of the HPCL board,” said a senior official aware of the development.

“But the government has once again invited applications for the post of HPCL’s CMD, a position that falls vacant in April next year, when Surana retires. This is perplexing,” the official added.

A senior petroleum ministry official, on his part, said it was decided that HPCL would continue to operate as “an independent PSU” even after ONGC bought the controlling stake. “There is no intention to change that position and ONGC cannot make decisions such as appointing directors and defining designations,” he said.

However, ONGC and HPCL are not at loggerheads. The two have developed some level of synergy though they operate in different spectrums.

“We have the skills and strengths on both sides. HPCL is using its marketing network to sell some of the petroleum products ONGC produces. These products, such as high-flash high-speed diesel (HFHSD), naphtha, and low-sulphur heavy stock (LSHS), are bought on an arm’s length basis from ONGC, and then retailed through the HPCL marketing network,” Surana told Business Standard.

ONGC did not respond to queries.

An HPCL spokesperson said: “ONGC is a major upstream company while HPCL is a strong downstream company with its focus on refining, marketing, gas, petrochemicals, renewables, and retailing. They are concentrating on their areas of strength to create value for their stakeholders and at the same time providing stability at group level in different commodity cycles.”

There were plans to integrate HPCL and the ONGC group’s other downstream subsidiaries such as Mangalore Refinery and Petrochemicals Ltd (MRPL), ONGC Mangalore Petrochemicals (OMPL), and ONGC Petro additions (OPaL).

Responding to a query on this, HPCL said: “As of now, ONGC and MRPL are concentrating on integrating OMPL and MRPL first.”