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ONGC, HPCL merger talks enter Ministerial level

Discussions have moved on to the Ministerial level regarding the proposed merger of State-owned Oil and Natural Gas Corporation Ltd. (ONGC) and India’s third-biggest fuel retailer Hindustan Petroleum Corporation Ltd. (HPCL) in an about Rs 44,000 crore ($6.6 billion) deal. This is part of the government’s plan to create an integrated oil giant.
Following up on the Finance Minister Mr Arun Jaitley’s 2017-18 Budget announcement of creating an integrated oil company, India’s biggest oil and gas producer ONGC may buy all of the government’s 51.11 percent stake in HPCL, sources said.
This will have to be followed by an open offer to acquire additional 26 percent from other shareholders of HPCL.
Govt thinking
The current Government thinking is that of merging HPCL with ONGC while keeping BPCL separate. BPCL already has a flourishing upstream arm in Bharat Petro Resources Ltd which can be strengthened further.
This way consumers will continue to have three fuel retailers in IOC, ONGC-HPCL combine and BPCL.
HPCL to add 23.8 mt capacity
HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC’s portfolio, making it the third-largest refiner in the country after IOC and Reliance Industries. ONGC already is majority owner of MRPL, which has a 15-mt refinery.
The person said ONGC buying HPCL will require two sets of Cabinet approval – one where the government approves sale of its all or part of its 51.11 percent stake to ONGC, and the other for allowing ONGC to spend the money on stake buy.
It will then have to buy another 26 percent from the open market for Rs 14,817 crore, taking the total acquisition price to about Rs 44,000 crore. The merger will help the world’s third-largest oil consumer better compete with global majors in acquiring foreign assets.
It was Mr Mani Shanker Aiyar, the then Petroleum Minister, who had first mooted merger of HPCL and BPCL with ONGC and OIL with IOC to create two oil giants having interests across the energy chain in 2004.
However, in September 2015, a high-level panel on recast of public sector oil firms did not favour mergers to create behemoths and instead suggested greater autonomy by transferring government shareholding in oil PSUs to a professionally-managed trust.

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