NEW DELHI: Oil and Natural Gas CorporationBSE -0.79 % (ONGC) will take control of Hindustan Petroleum Corp (HPCL) as part of the government’s plan to create an integrated public sector oil entity comparable with big global oil companies like Shell BP and Exxon, top government officials told ET.
“It is a very big decision. A Cabinet note will soon be moved. The government of India will transfer its majority shareholding (of 51.11% in HPCL) to ONGC, which will then become the holding company of HPCL,” said one of the officials cited above. The move will stop short of a complete merger, which may take longer, but the purpose will be served with this step, said the people cited above.
ET was the first to report on February 21 that the government plans to integrate either HPCL or Bharat Petroleum Corp. Ltd (BPCL) with ONGC in line with the February 1 budget announcement to “create an integrated public sector oil major which will be able to match the performance of international and domestic private sector oil and gas companies.” ET had also reported that the status of all other oil companies such as Oil India Ltd (OIL) and Indian Oil Corp. (IOC) would remain unchanged.
ONGC’s exploration functions will be integrated with HPCL’s refining and distribution capabilities. HPCL, which owns and operates two major refineries in Mumbai and Visakhapatnam, has India’s largest lubricants unit and second largest pipeline network of 3,015 km apart from a vast marketing system.
The thinking behind such vertical integration is that it will reduce risk-high crude oil prices will boost the exploration business and when they drop, the distribution segment will benefit.
“The world over, the largest and most successful oil companies like Shell, BP and Exxon, are vertically integrated,” said an official, stressing that ONGC-HPCL’s earnings will become more stable and investors will benefit from this reduced volatility.