Risky Deal?

The ONGC-HPCL merger appears to be a bad idea for the government and the industry.

- C.H.Unnikrishnan

AMIDST GROWING industry concern and market uncertainties, the government has apparently decided to go ahead with the mega merger of India’s oil sector as was proposed in the Budget. If sources at the oil ministry are to be believed,the Prime Minister’s Office has already instructed it to kick start the process of a possible merger between India’s oil exploration leader ONGC and retailer Hindustan Petroleum Corporation (HPCL) in the first phase.

There are rumours that from the merger the government is likely to make a windfall by divesting its 51.11 per cent stake in HPCL, but finance ministry sources have confirmed that this deal is outside the government’s PSU divestment target.

On 1 February, finance minister Arun Jaitley had proposed in his fourth Budget speech government’s intention to consolidate the public sector oil companies.

“The government plans to form a major oil company by merging some of the existing firms in the oil and gas sector to take on international and domestic players...” he had announced in the Budget.

Exactly a month after the announcement, the industry was abuzz with talks of India’s third largest oil retailer HPCL being acquired by the country’s largest oil explorer ONGC in a Rs 44,000-crore deal, which triggered an instant negative market reaction on oil stocks.

Acquisition Vs Merger