Moneycontrol
Feb 02, 2017 12:35 PM IST | Source: CNBC-TV18

Merger of oil cos a tough task, but has its merits: HPCL

Merging all the oil companies into one entity looks difficult even though it has financial benefits, says HPCL’s Chairman and Managing Director, MK Surana, commenting on the Finance Minister Arun Jaitley’s Budget proposal to merge state oil firms to create an oil behemoth


Merging all the oil companies into one entity looks difficult even though it has financial benefits, says HPCL’s Chairman and Managing Director, MK Surana, commenting on the Finance Minister Arun Jaitley’s Budget proposal to merge state oil firms to create an oil behemoth. 'Size of a company does matter in the oil industry’, he says in an interview to CNBC-TV18. 


Oil Minister Dharmendra Pradhan had expressed views similar to Surana in a post-Budget interview when he said it “wouldn't be wise to put all eggs in one basket” and there would be 'multi’ oil PSUs.  


Surana noted the concept of integration is not new to the oil industry and was expected for some time.

AK Srinivasan, Director Finance at ONGC believes it is early to comment as there is not much clarity on how integration roadmap will be laid out. However, he believes integration will improve financial leverage of oil companies.

Also read: A merged oil giant could be disastrous sans operational freedom

Below is the verbatim transcript of AK Srinivasan and MK Surana's interview to Latha Venkatesh & Anuj Singhal on CNBC-TV18.

Latha: What have you made of oil minister Dharmendra Pradhan\\'s statement? Should we expect integration or should we not?

Srinivasan: The integration is going to give a lot of financial leverage. It will be a helpful proposition.

Anuj: What could be the contours of such consolidation? One view is that you could make two large companies.

Srinivasan: As of now it is very difficult. The ministry will be working on that. However, the companies are not very clear about it. Let the administrative ministry take the call.

Anuj: Companies may not be clear but what I am trying to arrive at is we could look at ONGC with one or two of smaller downstream companies and Oil India with one or two with bigger oil marketing companies to make two similar large size entities. Would that be a fair way of looking at things?

Srinivasan: I will not be able to comment on it right now. We will look at it as things unfold. As of now it is difficult to make any observation on that.

Latha: How have you understood what the finance minister said and what the oil minister has kind of clarified?

Surana: I personally feel that it will be difficult to have one entity with all the oil majors of India together. It will be too big. Therefore, I think practically it will be more than one and may not be one though we need to get clarification further because the announcement has been made just now and the details are yet to be known but I think it may not be one but more than one - that\\'s first.

Second, the integration of companies has not been new to oil industry worldwide. We have seen major aggregation in the past and earlier to that even disintegration has not been very uncommon when the seven sisters broke out. So oil industry worldwide has been going through these phases of integration etc. However, it was new for Indian system maybe the last one or the only one which we have seen is when HPCL was formed after merger of Esso and Caltex operations in India. So as a concept it is a known concept in the oil industry and the details will decide what will be the leverage which can get out of it. So as a concept it is good and how do we do is what will make the difference because we should be able to leverage something further than what each of the individual oil companies already have in it because each companies have got the strength but in oil industry the size do matter and that is the fact and if you are bigger, you can preserve your position in better negotiation even in terms of crude purchases, in terms of getting foreign assets.

Anuj: Could we have a scenario where ONGC leads one consortium and Indian Oil Corporation (IOC) leads the other. What about pure refining companies?

Surana: It can be both vertical and horizontal as the way I see it, so multiple possibilities and options are available where independent refining companies can merge with the oil and marketing companies or upstream and downstream companies can come together. We need to see the details of it. Basically we should be able to leverage the position better than what we have and then we need to see. However, right now it\\'s pre-emptive to say anything on that. Once the details are known we can think but it can be both ways.

Latha: What would you see as roadblocks? Would it be labour, would it be culture differences between companies. Why this statement and quick retraction?

Srinivasan: Merging the downstream, upstream, there will be some cultural differences but as I said once things unfold then we will see how things will evolve into the process.

Latha: You have not been asked to give any blueprint. This has come as news to you?

Srinivasan: This was under thinking and this has come as an item in the Budget. This needs to be further deliberated and thought about it.

Anuj: You have 72 percent stake in Mangalore Refinery and Petrochemicals (MRPL), so are we looking at ONGC an MRPL merger to begin with and also give us your thoughts on the Budget where expectation was that cess will be reduced after the kind of surge we have seen in crude but that didn\\'t happen?

Srinivasan: We thought that the ad-valorem cess would come down but that\\'s not factored in the current Budget, so there has been large expectations but it didn\\'t work.

As far as the merger of MRPL and ONGC is concerned, its 71 percent subsidiary of the company and it\\'s under the parent company ONGC as on date, so it is as good as working together.

Latha: The oil subsidy numbers looking under budgeted. Are you going to be shocked with having to share a part of the burden?

Srinivasan: As of now nothing. In the current year \\'16-17 we do not expect any numbers to be put in; subsidy will not be coming across.

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