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ONGC May Acquire HPCL To Compete With Saudi Aramco And Other Global Giants. 10 Points

If the deal goes through, 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.
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ONGC May Acquire HPCL To Compete With Saudi Aramco And Other Global Giants. 10 Points

Highlights

  1. Energy giant will compete with the likes of Saudi Aramco and Petro China
  2. HPCL has 23.8 million tonnes of annual oil refinery capacity
  3. The first such proposal was mooted in 2004
In order to create a mega oil company in the country that could compete with the likes of Aramco of Saudi Arabia, and Petro China and Sinopec, India's largest oil producing company, Oil and Natural Gas Corporation (ONGC) is likely to acquire  India's third-largest fuel retailer HPCL in a deal estimated to be around Rs 44,000 crore ($6.6 billion). A bigger entity will result in higher resources for investing in new technologies and acquiring hydrocarbon assets overseas. The final decision will have to be approved by the government, which is the largest shareholder in both companies. Finance minister Arun Jaitley, in his budget speech delivered earlier this month had announced possibility of an integrated oil company to compete in the global market.

Here are 10 things about the possible deal

1)    The deal will have to be followed by an open offer to acquire additional 26 per cent from other shareholders of HPCL.

2)    There are only six major companies in the sector - ONGC and Oil India Ltd being the oil producers, Indian Oil Corp (IOC), HPCL and Bharat Petroleum Corp Ltd (BPCL) in refinery business and GAIL in midstream gas transportation business.

3)    The rest such as ONGC Videsh, Chennai Petroleum Corp (CPCL), Numaligarh Refinery Ltd and Mangalore Refinery (MRPL) are already subsidiaries of one of these six PSUs.

4)    If the deal goes through, 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.

5)    ONGC currently holds majority stake in MRPL, which has a 15-mt refinery.

6)    The merger will help the world's third-largest oil consumer better compete with global majors in acquiring foreign assets.

7)    Considering today's trading price of Rs 561, ONGC will have to pay the government Rs 29,128 crore for 51.11 per cent stake. It will then have to buy another 26 per cent from the open market for Rs 14,817 crore, taking the total acquisition price to about Rs 44,000 crore.

8)    Even as the current government is considering the proposal to merge oil PSUs to create a mega company, such proposals have been discussed many times in the past.

9)    The first such proposal was mooted in 2004 by the then oil minister Mani Shankar Aiyar. He wanted merger of  HPCL and BPCL with ONGC and OIL with IOC to create two oil behemoths in the country.

10)    In September 2015, a high-level panel on recast of public sector oil firms rejected the idea of  merger of oil companies and instead suggested greater autonomy by transferring government shareholding in oil PSUs to a professionally-managed trust.

(With PTI Inputs)

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