There are unconfirmed reports that the government might ask Oil and Natural Gas Corporation (ONGC) to acquire Hindustan Petroleum Corporation (HPC), as part of an earlier stated aim to create a mega entity in the sector.
Any decision asking ONGC to buy out government equity in HPC would hinge on its ability to raise debt or sell its holding in other public sector undertakings, senior officials said on Monday.
“The ONGC surplus has come down to less than Rs 10,000 crore, not enough for such a buy-out. Besides, it will not want to spend its entire surplus and more on the acquisition,” said a senior official.
ONGC, however, would operationally benefit from such an integration. HPC is the third largest fuel retailer in the country and its ownership would give ONGC access to 13,000 retail outlets and 14.8 million tonnes of annual refining capacity, plus stake in a joint venture refinery with ArcelorMittal. ONGC has only a marginal presence in the two segments, through subsidiary Mangalore Refinery and Petrochemicals.
Officials said the proposal to buy government equity of 51.11 per cent in HPC was yet to be discussed with the companies. ONGC would have to sell off its holding in Indian Oil Corporation, the market leader in petroleum retailing, and in GAIL India to fund the deal.
The buy-out could cost as much as Rs 44,000 crore at current market value. Besides, the government equity, valued at Rs 29,130 crore, ONGC would have to make an open offer of an additional 26 per cent to other shareholders of the company, in accord with market regulations.
In his February 1 Union Budget speech, Finance Minister Arun Jaitley said the government saw opportunities to strengthen central public sector units through consolidation, mergers and acquisitions. “Possibilities of such restructuring are visible in the oil and gas sector. We propose 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,” he’d said.
Since both HPC and Bharat Petroleum Corporation were nationalised and there are four different laws that govern this, the government cannot privatise or merge these companies. The Supreme Court in 2003 had restrained the government of Atal Behari Vajpayee from privatising the two companies. What would be the legal implication of the government passing on the ownership to ONGC is yet to be known.
HPC was incorporated in 1974, after takeover and merger of erstwhile Esso Standard and Lube India through enactment of the Esso (Acquisition of Undertakings in India) Act. Caltex Oil Refining (India) was taken over by the Government of India in 1976 and merged with HPC in 1978 by the CORIL-HPCL Amalgamation Order, 1978. Kosan Gas Company was merged with HPC in 1979 by the Kosan Gas Company Acquisition Act.
A positive that could emerge from the merger is neutralising of current risks in the oil market. With climate change concerns limiting the use of hydrocarbons to a large extent, an oil producing company, ONGC, can benefit from an integrated business of refining, retailing and even green energy.