Budget 2017: India aims to create its own ExxonMobil
The Indian government’s move comes in the backdrop of concerns articulated over rising oil prices presenting a challenge to the country’s growth
New Delhi: Finance minister Arun Jaitley on Wednesday announced plans to create a state-run behemoth by merging various public sector firms 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,” said Jaitley in his budget speech.
International firms such as ExxonMobil, Royal Dutch Shell plc and BP Plc have integrated operations across upstream exploration, refining and fuel retail.
The Indian government’s move comes in the backdrop of concerns articulated over rising oil prices presenting a challenge to the country’s growth. The price of crude oil in the Indian energy basket has increased from $39.9 in April 2016 to $52.7 in December 2016.
The Indian energy basket represents the average of Oman, Dubai and Brent crude. The price was $54.63 per barrel on Friday.
The state-owned firms in the oil and gas sector are; Oil and Natural Gas Corp. (ONGC), Oil India Ltd, GAIL (India) Ltd, Indian Oil Corp., Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd, Numaligarh Refinery Ltd, Chennai Petroleum Corp. Ltd, Engineers India Ltd, Balmer Lawrie & Co. Ltd, and Biecco Lawrie Co. Ltd.
“We see opportunities to strengthen our CPSEs (central public sector enterprises) 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,” Jaitley said.
The concern over crude oil prices stems from India’s energy import bill of around $150 billion, expected to reach $300 billion by 2030. India imports around 80% of its crude oil and 18% of its natural gas requirements. India imported 202 million tonnes of oil in 2015-16.
The state owned firms welcomed the move.
“Though the finer details are yet to come but the intention appears to form an integrated company on the lines of integrated oil firms such as ExxonMobil, Shell and BP,” said Dinesh K. Sarraf, chairman and managing director, ONGC.
This also comes at a time of faltering domestic crude oil and gas production and output cuts announced by the Organization of the Petroleum Exporting Countries (Opec). India is one of the major consumers of Opec’s production, with the grouping accounting for 85% and 94% of India’s crude oil and gas imports.
India’s energy demand growth is expected to outpace the other BRIC (Brazil, Russia, China, India) countries, according to the latest BP Energy Outlook released last week.
“The new entity will have economies of scale and Indian industry’s negotiating power globally will increase significantly. This will also contribute to improved stability of the industry because of integration,” added Sarraf.