In what can rival the likes of Russia’s Rosneft ($55 billion in market cap) and UK’s BP Plc ($112 billion) in market value and financial power, finance minister Arun Jaitley while presenting the Union Budget 2017 announced creation of an integrated public sector ‘oil major’ by integrating the oil sector PSUs across the value chain and to enhance capacity of Oil PSUs to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders.
Oil PSUs that will be lead to creation of a consolidated entity will include companies like Oil and Natural Gas Corporation (ONGC) along with 12 others like Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum, GAIL India Ltd, Mangalore Refinery and Petrochemicals (MRPL), Chennai Petroleum and Numaligarh Refinery and Oil India.
Finance minister Arun Jaitley announced this in the Parliament on Wednesday as part of his Budget provisions for 2017-18, a move that was hailed by both the industry and PSUs. A merged mega entity will possess robust muscle power to borrow as well as invest and acquire lucrative oil and gas properties overseas.
Union Petroleum Minister, Dharmendra Pradhan also welcomed this and other proposals announced by the finance minister to boost India’s oil and gas Sector.
Pradhan said the budget 2017-18 aims to transform the quality of governance and quality of life, energise various sections of society and clean the country from the evils of corruption and black money.
Besides the proposal to create a mega oil entity, the finance minister also announced reduction in the basic customs duty on LNG from 5% to 2.5%.
In line with India’s energy security needs, the Budget announced setting up of two more strategic oil reserves at Chandikhole in Odisha and Bikaner in Rajasthan.
Pradhan said the move will enhance India’s energy security “taking our strategic reserve capacity to 15.33 MMT.”
This, he said, will increase India’s storage capacity to meet the consumption requirement of about 90 days which is at par with the international benchmarks.
Alongside the Budget also announced that foreign companies shall not be liable to tax in India in case of sale of leftover stock of crude oil in case of strategic petroleum reserve after the expiry of agreement or the arrangement, subject to fulfilment of certain conditions.
A mention to encourage digital payments through creation of digital payment infrastructure across all fuel stations by setting up facilities for digital payments including BHIM app was also made in the Budget.
The Finance Minister has also praised the Direct Benefit Transfer scheme for LPG and kerosene of the Ministry of Petroleum and Natural Gas which is underway across states in his Budget speech.
“The reduction in LNG duty is welcome as it will reduce the cost of energy in the system. The idea of an integrated oil major as originally floated by UPA-I, which was not found viable, is now being reconsidered by the present government,” said Lalit Kumar Gupta
MD & CEO, Essar Oil.
He said creation of more refining capacity would be better rather than the new strategic reserve of crude oil. “As the new refining capacity will not only achieve the same objective of creating Strategic reserve but will also lead to socio-economic development and creation of huge employment opportunities,” Gupta said.
According to K Ravichandran, Senior Vice President at ratings agency ICRA, the merger will prove to be a good step in the long run as it will enable the companies to withstand the international volatility in the oil and gas segment. “Historically such amalgamation have been successful for international companies like Exxon Mobil, Shell, Chevron etc as it results in strengthening of balance sheets as margins improve due to economy of scale. It also gives PSUs an edge due to sovereign ownership. However such an integration will have challenges when it comes to manpower strength due to differing HR policies of PSUs,” he said.