The Department of Investment and Public Asset Management (DIPAM) will shortly seek cabinet approval for Oil and Natural Gas Corporation Limited to buy the government’s entire stake in refiner Hindustan Petroleum Corporation Ltd in line with the oil ministry’s proposal of creating a domestic oil giant, people with direct knowledge of the matter told source.
The move is based on the recommendations of consultancy Deloitte, which the oil ministry had hired to suggest ways of restructuring state firms. The ministry has left it to the department of investment to decide on how the divestment in HPCL should be achieved, although it’s suggested the refiner be retained as a separate unit of ONGC, and not merged with it.
“The divestment of HPCL stake will help government generate resources that could be deployed for social welfare,” said one of the persons cited above.
The government owns 51.11% of HPCL and 68.07% of ONGC. At current prices, a sale of the entire HPCL stake could fetch the government about Rs 28,000 crore.
The combined market value of ONGC and HPCL is Rs 2.76 lakh crore, or $42 billion, which is comparable with Rosneft’s $52 billion.
ONGC to Gain Downstream Presence - An ONGC-HPCL combine will, however, be much smaller than global giants such as ExxonMobil ($340 billion), Shell ($222 billion), Total ($128 billion) or BP ($120 billion).
The February Budget had proposed the creation of an integrated public sector ‘oil major’ through consolidation that would match global rivals.
The Budget announcement had fuelled speculation that state oil firms may be radically reorganised into fewer units with each having a presence in both upstream and downstream segments. Currently, there is no other proposal for reorganising state firms, barring ONGC’s proposed acquisition of HPCL, sources said.
Since February 28, when source first reported the government’s plan to sell its stake in HPCL to ONGC, their stock has fallen 3% and 11%, respectively, while the benchmark Sensex has risen 8%.
The report also said other state oil firms would stay unaffected.
The acquisition of HPCL would make ONGC, an exploration and development company that produces 60% of country’s crude oil, a much more integrated player with a large presence in the downstream segment. ONGC already has a presence in the refining sector with its subsidiary MRPL operating a 15 million tonne plant in Mangalore that it plans to expand to 25 million tonnes.
HPCL operates 16 million tonnes of refining capacity and another 9 million tonnes through a joint venture. Indian Oil is the leading domestic refiner with 80 million tonnes of capacity followed by Reliance Industries with 60 million tonnes.
The acquisition would also give ONGC control over HPCL’s 14,500 filling stations, about a quarter of the domestic transport fuel market. ONGC’s subsidiary MRPL too has licences to operate petrol pumps but hasn’t been able to make much headway so far.