InvestorQ : Is it true that the government is again planning to consolidate the oil companies into a single entity as Arun Jaitley had outlined in the 2015 budget?
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Is it true that the government is again planning to consolidate the oil companies into a single entity as Arun Jaitley had outlined in the 2015 budget?

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Riya Dwivedi answered.
2 weeks ago
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After a gap, the government plans to revive the plan for consolidation of public sector oil companies. This will be executed through a string of mergers between oil upstream oil midstream and oil downstream companies. This will cover the entire gamut of oil companies ranging from extraction, production, refining and oil marketing. This would also include the gas companies.

This is again in the news due to the new privatisation policy unveiled in this year's Budget. As per the policy, only bare minimum presence will be maintained in petroleum sector and that could happen quite soon. Remember, BPCL is already slated for privatization in FY22. In 2018, HPCL was merged into ONGC in the first of such deals. Government is also currently considering the merger of Oil India and IOCL for better synergies.

In the past, IOCL was not permitted to bid for BPCL as they wanted to keep oil companies out of the bidding process. But, now with the changed policy and if the government wants better synergies from the merger then it can look to allowing combination of IOCL and BPCL too. IOC's case for BPCL may also be considered if the proposed bidding for BPCL fails or if the government fails to get the requisite price.

There are currently 12 oil PSUs, ranging from upstream oil producers like ONGC and Oil India to downstream refining and fuel marketing companies like IOC, BPCL and HPCL as well as gas transporters like GAIL India. We can also add to that list companies like engineering firm Engineers India Ltd which largely services the oil sector at the upstream and downstream end.

Of course, balance sheet and solvency are key issues. For example, after ONGC paid Rs.36,915 crore to buy the government's 51.11% stake in HPCL, it resulted in a sharp depletion of ONGC’s cash pile of Rs.10,800 crore and also saddled ONGC with debt to the tune of Rs.25,593 crore. The only worry is that any merger deal could leave the acquiring company with a lot of debt in the books. 

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