Country’s upstream major company – the ONGC Ltd has got President’s consent to acquire majority stake in the downstream firm Hindustan Petroleum Corporation Ltd (HPCL). According to a statement issued by ONGC, the company is going to acquire 51.11%shre in HPCL for which the consent has got on 20th of January 2018. The transaction valued at Rs 36915 crores will be completed by end January.
Government’s decision to merge PSU oil firms was announced in budget 2017. Cabinet has ratified the deal in July 2017.
In November 2017, SEBI exempted the deal from making higher disclosures requirements.
The ONGC-HPCL deal is as per the government policy of merging major Central Public-Sector Enterprises. As per the policy, consolidation and higher size will give the CPSEs the strength to overcome risks.
Control over a downstream company like HPCL may help the ONGC to tide over risks related to the fluctuations of crude prices according to market observers.
Backgrounder: Policy on oil PSU merger
The government’s objective of the Oil PSU merger is to create a big entity worth around $100 bn so that it can challenge both upstream and downstream activities on a global scale. ONGC is the biggest oil company in the country, though it is having specialization in the upstream (exploration and production) segment. Other major oil PSUs are: Indian Oil Corporation (largest refiner and retailer) Bharat Petroleum Corporation, Hindustan Petroleum, GAIL, Mangalore Refinery and Petrochemicals (MRPL), Chennai Petroleum and Numaligarh Refinery and Oil India.