Will HPCL be on par with ‘parent’ ONGC?

A bumper profit of over ₹6,000 crore for the second straight year has helped State-run oil refiner Hindustan Petroleum Corporation Ltd (HPCL) stake its claim for the coveted ‘maharatna’ status.

However, the ‘maharatna’ status will also put HPCL and its holding company ONGC (already a ‘maharatna’) on a par on decision-making powers. This would further complicate a disinvestment deal from earlier this year when the State-run oil and gas explorer acquired 51.11 per cent of the government’s stake in HPCL for ₹36,915 crore.

HPCL is yet to recognise ONGC as its promoter.

ONGC is shown to be a public shareholder with 51.11 per cent stake in HPCL, in its most recent share-holding pattern submitted to the Bombay Stock Exchange. ONGC has only one member on HPCL’s board.

For HPCL, a ‘maharatna’ status will potentially curtail ONGC’s powers to take business decisions for the oil marketing company, in which the explorer holds a controlling stake, say oil industry sources.

The ‘maharatna’ status bestows greater freedom from government control for the PSU to incur capital expenditure on purchase of new items, or for replacement, without any monetary ceiling, and to forge technology joint ventures (JVs) or strategic alliances.

The status also allows the PSU to make equity investment to establish financial JVs and wholly-owned subsidiaries, undertake mergers and acquisitions (M&As) in India or abroad, subject to a ceiling of 15 per cent of the net worth of the PSU, and limited to ₹5,000 crore in one project.

The board of directors of a ‘maharatna’ PSU will also have powers for mergers and acquisitions, subject to the conditions that it should be as per the growth plan and in the core area of functioning of the PSU and the Cabinet Committee on Economic Affairs (CCEA) is informed in case of investments abroad.

Mumbai-based HPCL posted a net profit of ₹6,357.07 crore for the financial year 2017-18. In fiscal years FY17 and FY16, it had net profits of ₹6,208.80 crore and ₹3,726.16 crore, respectively, thereby enabling the firm to show an average annual net profit of more than ₹5,000 crore for the last three years, one of the six criteria required to become a ‘maharatna’ central public sector enterprise.

The lack of an average annual net profit of more than ₹5,000 crore for the last three years was the only qualification criteria holding up its pursuit of a ‘maharatna’ status.

“HPCL has applied for maharatna status,” a company official said.

HPCL is already a ‘navratna’ PSU with an annual average turnover and net worth for the last three years way above the limit set for ‘maharatna’ companies.

In fiscal years 2016, 2017 and 2018, HPCL’s turnover from operations was ₹1.97-lakh crore, ₹2.13-lakh crore and ₹2.43-lakh crore, respectively. To become eligible for ‘maharatna’ status, a PSU must have an average annual turnover of more than ₹25,000 crore for 3 years.

The oil refiner also meets the criteria for having an average annual net worth of more than ₹15,000 crore for the last 3 years, besides having significant global presence.

HPCL’s imminent anointment as a ‘maharatna’ PSU will put it in an elite PSU club that includes oil and gas sector compatriots such as Oil and Natural Gas Corporation Ltd, Gas Authority of India Ltd, Indian Oil Corporation Ltd, and Bharat Petroleum Corporation Ltd. National Thermal Power Corporation Ltd, Bharat Heavy Electricals Ltd, Coal India Ltd and Steel Authority of India Ltd are the other ‘maharatna’ companies.

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