HPCL, ONGC Merger May Get Cabinet Nod This Month, But The Deal May Still Take 1 Year

HPCL, ONGC Merger May Get Cabinet Nod This Month, But The Deal May Still Take 1 Year

The Department of Disinvestment has issued a Cabinet note on the proposed amalgamation of the state-run refiner Hindustan Petroleum Corp Ltd with the giant oil explorer Oil and Natural Gas Corp, CNBC Awaaz reported on Thursday, amid news reports of the Prime Minister’s Office’s disappointment on the slow progress in the government’s quest to create a huge energy PSU of the global scale. The Cabinet may take up the proposal as early as in next 10 to 15 days, PTI reported later in the day citing an unidentified source.

However, a deal may still not be immediately in sight, as the handover of HPCL to ONGC may take one year even after the government securing the Cabinet nod, CNBC Awaaz reported citing unidentified sources. Earlier last week, ET Now had reported that the PMO, which is firm on merging the two oil companies, had expressed unhappiness with the slow pace of movement on the proposed sale of HPCL to ONGC.

The government will seek an in-principle approval from the Cabinet for sale of 51% equity stake in HPCL to ONGC, CNBC Awaaz report said, adding that in the process of handover of HPCL’s management control to ONGC, the disinvestment will be done via a strategic stake sale.

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.

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Further, the government will form a Group of Ministers (GoM) to frame guidelines, price and timeframe for the share sale, CNBC Awaaz reported, adding that Finance Minister Arun Jaitley, road minister Nitin Gadkari and oil minister Dharmendra Pradhan will be part of the proposed GoM.

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.

Source Link – Financial Express

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