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As part of its consolidation drive for better resource management, Oil and Natural Gas Corporation Ltd (ONGC) is moving towards the merger of its two refining subsidiaries – Mangalore Refinery and Petrochemicals Ltd (MRPL) with Hindustan Petroleum Corporation Ltd (HPCL).
There were expectations that the proposed merger may happen in 2021, but it may be pushed back due to the pandemic.
However, the process has already started with the integration of ONGC Mangalore Petrochemicals Limited (OMPL) with MRPL. MRPL held a controlling stake of 51 per cent in OMPL, while ONGC held the remaining 49 per cent. Now, OMPL is a 100 per cent subsidairy of MRPL. Shashi Shanker, Chairman and Managing Director of ONGC, told BusinessLine : “The acquisition of OMPL by MRPL is the first step towards consolidation of our downstream business. The next step would be HPCL-MRPL merger.”
The parent company ONGC hopes that the OMPL-MRPL merger will result in an improvement in cooperation between the two subsidiaries on issues such as product supply sharing.
Integrated oil major
This consolidation and integration process is also in keeping the government’s intent to create an integrated oil major and to enhance capacity of oil PSUs to bear higher risks, avail economies of scale, take higher investment decisions, and create more value for stakeholders.
In his Budget of 2017-18, the then Finance Minister Arun Jaitley had said: “We see opportunities to strengthen our CPSEs 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. Possibilities of such restructuring are visible in the oil and gas sector. We propose 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.”
Disinvestment
On the issue of share dilution or disinvestment, ONGC has been campaigning with the Centre to take such decisions only at the level of the parent company, as it hopes to take full control of streamlining its backward integration.
“From time to time the government exercises its prerogative to sell ONGC shares even at discounted rates. This is why the share price growth does not hold,” said another official, adding: “But any divestment decisions regarding ONGC’s subsidiaries should be taken by the company.”
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