The Hindu Business Line : A report sans energy

THERE WAS MUCH disappointment for those who expected big-bang recommendations from the high-profile Synergy in Energy Committee, which submitted its report on Monday. Set up to examine the possibility of restructuring the oil industry through mega mergers, the Committee does not think much of the idea. It has instead come up with an alternative to strengthen the existing structure "through policy changes and management/structural improvements".

It is indeed good that the Committee has once again highlighted this well-worn fact of the oil industry. But this is not mutually exclusive with the option of bundling the public sector units in the industry into just two players integrated across the value chain. What we have today are half-a-dozen companies of varying sizes with specialisation in parts of the value chain. Importantly, none is of global size; the biggest of them all, Indian Oil, with a turnover of $34 billion, is still a minnow compared to, say, Royal Dutch/Shell with a turnover of $337 billion. And these are all ambitious minnows that want to extend themselves elsewhere in the value chain in their quest for growth. Thus, if an ONGC is entering the retailing sector, an Indian Oil is foraying into exploration and so on. Thus, it is a completely unplanned and chaotic growth in the industry with companies often working against one another.

Needed is a pooling of their resources for the hallowed objective of securing the country's energy interests. This would become a sine qua non when these companies foray abroad in search of equity oil and have often to go head-to-head with global Goliaths. What better way of ensuring this than by merging these minnows to create, say, two global-size companies, which can marshal the resources — financial, technical and managerial — to compete for the assets that come up for sale or for equity participation abroad? A major point against such a merger is the loss of jobs it would entail. But this can be tackled through VRS which some oil companies are already implementing. Anyway, this cannot be held out as a reason for not attempting a restructuring that could raise efficiencies all round. The second argument against a merger is that it could lead to a monopoly and kill competition. But the fact is that though the number of government companies would come down to just two, competition would come from such private players as Reliance Industries, Essar Oil and Shell, already operating in the retail segment. Anyway, the Government has to first let go of control over the industry before competition can become a reality.

That said, there are a few interesting recommendations too such as the one to declare a ceiling price for petrol and diesel, leaving the retailing companies free to fix their own competitive prices. The suggestion on the creation of a price stabilisation fund for petrol and diesel needs close scrutiny, as it appears suspiciously like the return of the Oil Pool Account in a different avatar. Also, it is not clear how the proposed National Shareholding Trust would promote efficiencies in the industry. Finally, the recommendation on merging standalone refining and marketing subsidiaries with their parents appears redundant because the holding companies have already initiated the process.

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