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Companies
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Press Release [FREE Access]
Petro Intelligence » ONGC-HPCL: A Marriage On The Rocks?

By R. Sasankan

Dr. Vijay KelkarJournalists, especially outspoken ones, can often get up people’s snouts with their sweeping observations. But this is a tactic that reporters often use to needle people who generally prefer silence over imprudent comment in the hope that they will cast aside their natural propensity towards reticence.

In my latest article on the ONGC-HPCL merger which appeared in the free access column, Petro Intelligence, of www.indianoilandgas.com on July 25, I deliberately wrote: “The plan to create an oil behemoth that would match the power and pelf of global industry peers may have been well intentioned but experts in the industry were pretty aghast when it was unveiled… Bureaucrats and oil industry experts preferred to remain silent and not voice their misgivings about the merger.”

That comment provoked an immediate response from a number of people who have widely been regarded as experts in the petroleum industry. The first to react was Dr Vijay Kelkar. Before becoming the country’s finance secretary, he was secretary (petroleum) for three years and presided over the oil sector reforms initiated in the late 1990s. Dr Kelkar objected to my observation that “industry experts preferred to remain silent and not voice their misgivings about the merger”.

Bikas Chandra BoraDr Kelkar vehemently rebutted that criticism and suggested that it was the media – and not the experts – that had chosen to remain quiet. He recalled that at the meeting called to discuss the issue, he had pleaded with the ministers not to go ahead with move. He asked me to cross-check this fact with M.K. Surana, HPCL’s CMD, who was present at the meeting.

All over the world, the tendency is to split oil companies and not integrate them. The experts say in today’s world where there is a better balance between crude oil supply and demand, there is no compelling need for an integrated oil company. This has been clearly demonstrated by ConocoPhillips which was broken up into downstream and upstream entities, both of which are performing better than they did when they were part of an integrated company. The US-based Anadarko is another example of a pure and independent E&P company which is regarded as a global success.

Bikas Chandra Bora, former CMD of ONGC, one of the sharpest brains in the oil sector, also described the ONGC-HPCL merger as a move that was taken in haste and totally undesirable. Bora was a member of the Krishnamurthy committee which opposed the merger that had been proposed by former petroleum minister Mani Shankar Aiyer. “The merger is doomed to failure even before it started,” said Sudhir Jatar, former CMD  of Oil India and a respected figure in the oil industry.

Dr. Surya P SethiCan the merger be undone? I posed this question to these experts. “ONGC should develop its own long range plan. It should consider getting a divorce from HPCL. Since Saudi Arabia’s Aramco has shown interest in investing in India’s downstream, ONGC should consider selling its interest to Aramco. Before that, it should accept the share swap offer of HPCL and merge MRPL with it. This will be a win-win situation for both HPCL and ONGC,” said Dr Bhamy Shenoy, a US-based oil expert who has worked with several multinational oil companies and regulatory bodies overseas.

The government is now trying to lure foreign oil companies to invest in India’s hydrocarbon exploration sector. India’s crude oil production has been stagnating for quite a few years now and it can go up significantly only if new oil and gas discoveries are made in a few new basins. This calls for enormous financial resources and the government is in no position to stump up the money. Fields in the producing basins have gone into decline, as is expected, and only a marginal increase can be expected even after harnessing new technologies.

Dr. Bhamy ShenoyBora argues that private oil companies will not enter difficult basins unless the ONGC and Oil India can demonstrate the hydrocarbon potential by first drilling high-cost, high-risk wells. For this, these upstream companies need financial resources. He believes that these companies should not be allowed to divert their resources to other areas of activity and ought not to lose sight of their primary focus on exploration. Consequently, the demerger of ONGC-HPCL is a vital necessity. In his view, the best option will be to merge HPCL with BPCL.

Dr Surya P. Sethi, an outstanding energy expert of international standing, also acknowledges that the merger was an unwise decision. Sethi, who served as India’s principal advisor (energy), returned to India from the Washington-based International Finance Corporation, a member of the World Bank group, at the invitation from then Prime Minister A.B.Vajpayee. He recalls a long discussion, one-on-one, he had with Mani Shankar Aiyer on the subject back in those days. Dr Sethi’s advice was to create a single strong upstream CPSU and privatise the downstream sector to create competing oil and gas marketing companies. In his view, genuine competition among the downstream companies is essential to create an efficient hydrocarbon sector.

He wanted GAIL to be made a pure pipeline and storage company held by the Centre to create pipeline and storage infrastructure with no interest in the product. It would be a regulated transport and storage utility without any stake in the content. GAIL, in his view, should have been given all port handling storage and pipeline assets covering both oil and gas.

Maj. Gen (Retd) SCN JatarThe private sector could establish integrated facilities that would be heavily regulated and could only establish dedicated/ captive pipeline transportation and storage infrastructure if they so desired. Instead of pump prices, the government could regulate refinery gate prices for domestic end-use.

 Dr Sethi insists that the proposal he made to Aiyer is still the ideal structure. Finer details can be worked out through extensive discussions.

Can the government go ahead with the merger ignoring the views of so many petroleum experts? These are genuine experts who are not associated with any political party. ONGC was never interested in acquiring a share in HPCL until it was forced to do so.

The management of HPCL has not shown any interest to be acquired by ONGC. Even now, HPCL has shown little interest in working with the ONGC management to complete the takeover. Why can’t we simply dissolve a marriage that neither partner really wants?



To download the latest issue 'Volume 26 Issue 22 - February 24, 2020', click here
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Monthly Downstream Data
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