Modi steps in to speed up giant oil PSU plan? Cabinet nod for HPCL, ONGC merger likely by August

The Prime Minister’s Office is apparently unhappy with the slow pace of movement on the proposed amalgamation of the state-run refiner Hindustan Petroleum Corp Ltd with the giant oil explorer Oil and Natural Gas Corp, a move towards the government’s ambition to create a giant energy PSU of the global scale.

The PMO, however, is firm on merging the two oil companies, ET Now reported on Thursday citing an unnamed oil ministry official. Further, in order to move ahead with the plan, the government will likely secure the Union Cabinet approval for the proposed merger by mid-August, the report said. HPCL shares rose on the news, and were trading up 1.22% at Rs 519.

As has been reported earlier, the government is said to be planning to combine HPCl with ONGC by December this year by selling its 51.1% stake in the former to the latter for $4.5 billion (about Rs 29,000 crore). The Ministry of Petroleum and Natural Gas is learnt to be in favour of adopting a subsidiary model for combining the two oil PSUs instead of merging the companies, making ONGC the parent company of HPCL, the reports had said then, adding that the government would decide final model of combining in few months.

A vertically integrated oil company would be better able to absorb the fluctuations in the global crude oil prices, as when the exploration unit will suffer from falling prices, the refining unit will benefit, and vice versa. Earlier in February, Finance Minister Arun Jaitley proposed setting up an integrated oil PSU (public sector undertaking) by merging companies with synergy in order to match the scale of the global oil giants.

India’s largest oil and gas exploration and production company ONGC said then that the proposed integration of oil PSUs will be a big positive for the sector as an integrated company is well positioned to handle volatility in crude oil prices. Negotiation power of a large oil company is better with its business partners, it had said.

In a research note released at around the same time, the brokerage firm HDFCSecurities has said the upstream and downstream companies can merge to reduce the impact of crude volatility. The newly formed oil major with strong balance sheet can also plan for big ticket global acquisition of oil fields to reduce import dependency, it added. However, HDFC Securities said that it sees limited impact on stocks from this aspect while the details are awaited.