Investments depend on risk-taking abilities, especially for spending money on overseas ventures, and autonomy. The State-owned oil companies possess neither. Vertically-integrated oil majors make sense if these too are handed over to the managements.
IT started with a lack of clarity. And it may end up with more confusion. The government’s aim to effect mega-mergers between State-owned oil and gas behemoths started on the backfoot, and now seems to be caught up on the wrong foot. In this year’s Budget speech, Arun Jaitley, the Finance Minister, said, “We see opportunities to strengthen our CPSEs (Central Public Sector Enterprises) through consolidation, mergers and acquisitions…. 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.”
Obviously, Jaitley’s idea was based on the emergence of global behemoths such as ExxonMobil, Royal Dutch Shell and BP (British Petroleum), as well other giants like Saudi Arabia’s Aramco and Russia’s Gazprom. The day after the Budget, a Reuters piece said that the combined market capitalisation of five Indian oil majors—ONGC, Oil India, Indian Oil, Hindustan Petroleum and Bharat Petroleum—was just over $100 billion, which was far less than ExxonMobil and Shell, but comparable to BP (just over $115 billion) and higher than Russia Rosneft ($70 billion).
Immediately after the Finance Minister’s speech, Petroleum Minister, Dharmendra Pradhan, issued an important clarification. “It will not be one company. It will not be wise to put all eggs in one basket. There will be multiple companies… but all these will be integrated.” He clarified that each of these 3-4 large entities, instead of the existing six (including GAIL) major ones, will be present across the entire value chain—from exploration, refining to retail. Weeks later, he added that the restructuring will result in vertical mergers.
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