Budget 2017: Infrastructure

India’s integrated oil firm to take on energy majors of the world

Energy giants: Creation of an integrated public sector ‘oil major’ (will) integrate the oil sector PSUs across the value chain and enhance capacity of Oil PSUs to bear higher risks, says Oil Minister Dharmendra Pradhan.   | Photo Credit: Reuters

Finance Minister in his Budget speech proposed to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies, without giving out finer details.

Globally, firms like Exxon Mobil, Royal Dutch Shell and BP Plc have integrated operations across upstream, and downstream unlike India, where ONGC, OIL and GAIL are majorly concentrated in upstream while HPCL, BPCL and Indian Oil are focussed on downstream operations of refining and marketing.

Welcoming the budget proposal, oil minister Dharmendra Pradhan said, “Creation of an integrated public sector ‘oil major’ to integrate 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.”

If upstream oil firms like ONGC, OIL, and GAIL are to be integrated it will have a combined market capitalisation of Rs 3,45,033 crore, revenues of Rs 1,39,967 crore and profits of Rs 20,633 crore.

Similarly, if downstream energy firms like IOCL, HPCL and BPCL comes together, it will have combined market capitalisation of Rs 3,37,112 crore, revenues of Rs 7,19,477 crore and profits of Rs 21,649 crore.

If all the six major upstream and downstream energy firms are to be integrated, the combined entity will have a market capitalisation of Rs 6,82,145 crore ($97.4 billion), revenues of Rs 8,59,444 crore ($122.7 billion) and profits of Rs 42,327 crore ($6 billion), overtaking many of the global peers and by far India’s most valued and profitable firm.

"Proposal is to restructure these companies to match the global companies in terms of its financial heft. Such a restructuring will not only help to enhance their value of stock in the market, it will also help them to mobilize future financial resources for their expansion and growth. Many of the large NOCs from other major countries are today listed in other international stock markets. Recently Saudi Aramco announced its plan for gradual listing to pave way for internationalization of Saudi economy. We need to wait for the detailed road map of the proposed restructuring to understand the fuller implications,” said Vedamoorthy Namasivayam, Partner, Deloitte India adding that the real challenge will be in terms of alignment of internal structure, staff and systems to get the necessary real synergy out of such consolidation.

Among upstream oil firms, shares of ONGC closed down marginally at Rs 200 while shares of OIL closed up marginally at Rs 331.5. GAIL shares gained 3.7% to Rs 484.75.

Manish Aggarwal, partner and head of energy and natural resources at KPMG believes that overall intent for the energy sector has been progressive and transformational, especially in few key aspects. “Oil imports constitute a lion’s share of India’s overall imports and the proposed creation of an ‘Integrated Oil Sector Major’ creates that fire-power for India to own and invest in a stable oil supply chain. Budget further enhanced scope of strategic oil storages by announcing creation of another 2 facilities targeting a cumulative capacity of 15.33 MMT,” said Aggarwal.

Among downstream oil firms, BPCL shares gained 1.72% to close at Rs 692.95, shares of HPCL closed up 3% at Rs 537.55 while shares of IOCL closed up 2.55% at Rs 375.4.

Hemal Zobalia, Partner, Deloitte Haskins & Sells LLP believes that the oil and gas sector is set up for major reforms with the creation of an integrated oil major which will help India to withstand global competition.

Government’s move to integrate oil firms comes in the backdrop of concerns articulated over rising oil prices that may present a challenge to the country’s growth prospects.

“The proposal to create an integrated PSU oil major is seen as a positive for MNC EPC majors such as Black & Veatch as it would offer us opportunities to offer our portfolio of services in the oil and gas domain delivered with local expertise.” said Anand Pattani, MD Black & Veatch India.

“We see opportunities to strengthen our CPSEs (central public sector enterprises) through consolidation, mergers and acquisitions. By these methods, the CPSEs can be integrated across the value chain of an industry. It will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders," said Jaitley adding that the possibilities of such restructuring are visible in the oil and gas sector.

ONGC chairman D K Sarraf welcomed the government decision as he believes that the new entity will have economies of scale and it will result in better negotiating power globally.

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Printable version | Jun 21, 2021 9:21:57 PM | https://www.thehindu.com/business/budget/indias-integrated-oil-firm-to-take-on-energy-majors-of-the-world/article17129585.ece

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