ONGC likely to buy government stake in HPCL
ONGC’s acquisition of government’s 51.1% stake in Hindustan Petroleum could be valued at $4.5 billion
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New Delhi: State-owned Oil and Natural Gas Corp. (ONGC) is likely to acquire the central government’s majority stake in refiner Hindustan Petroleum Corp. Ltd (HPCL) by the end of this financial year, but will initially keep the company as a separate unit, two persons familiar with the development said on condition of anonymity.
Although the initial plan was a merger of the two state-owned companies, the current thinking is to let ONGC take over HPCL so that the sale consideration flows to the exchequer in a year the Union budget has set a disinvestment target of Rs72,500 crore.
Finer details of the transaction are yet to be worked out but news agency Bloomberg said on Thursday the deal could be valued at $4.5 billion for 51.1% of government stake in HPCL, based on Wednesday’s closing price. HPCL stock closed on Thursday at Rs541.3 on BSE, down 1.6%.
“The transaction will be limited to a share transfer as an operational merger of upstream and downstream companies cannot be completed within one year,” said one of the persons quoted above. Yet another official in a state-owned oil company not related to the transaction said that merging two firms, although in the same industry and owned by the same promoter, would be a time-consuming affair as different companies have different work cultures. Emails sent to ONGC and HPCL on Thursday remained unanswered till press time.
Finance minister Arun Jaitley said at a briefing on Thursday on the National Democratic Alliance (NDA) government’s three years in office that the proposal to integrate state-owned oil and gas companies announced in the 2017-18 budget will be given final shape by the oil ministry. Jaitley had proposed creation of an “oil major’ that will have capacity to bear higher risks, avail of economies of scale, take higher investment decisions and create more value for the stakeholders.
An official with ONGC said on condition of anonymity that the company was studying various options in the context of the government’s desire to integrate oil companies to enable better management of price volatility, but have not crystallised the acquisition plan.
Over a period of time, the distinction between companies in the oil sector as exploration, refining and trading and gas transportation companies have blurred with firms diversifying across the value chain to reduce their risk.
Meanwhile, upstream regulator Director General of Hydrocarbons (DGH) on 25 May decided to set up review committees that will advise ONGC and Oil India Ltd on the management of oil and gas fields nominated to the companies by the government without auction. This brings the activities of the companies with respect to such fields directly under the oversight of the regulator attached to the oil ministry. The government wants a more coordinated approach in managing its hydrocarbon assets with a goal to reduce import dependence.