India has approved the country’s biggest oil and gas explorer. There was a plan that was outlined in
February to create an oil giant in India through mergers and consolidation. This multi-billion deal will
make both HPCL and ONGC stronger because the benefits of synergy are going to be huge. These were
the words of the ONGC Chairman Dinesh Kumar Sarraf during a phone interview.

 

Why one big company?

India has decided to invest in oil on a large scale because combining all the majority stakes that the
government owns in eight major oil and gas firms will create a bigger corporation with impact and
influence. This will enable the cooperation to negotiate better deals such as on crude oil purchases. A
merged business is going to be less vulnerable to the vagaries of the prices of oil by combining
producers.

 

Overview of the eight state owned companies

The combined market value of the companies is about 112 billion dollars. If the companies are folded to
produce one giant company that will invest in oil, then the giant company will rank seventh globally
among major oil and gas companies. This entity will no doubt outstrip the private giant Reliance
Industries Ltd in India. The market value of the company is 67 billion dollars.

Indian oil minister Dharmendra Pradhan said that the ministry was open to discussions about the
merger to create a stronger and larger national oil company. He also added that the government was
also figuring out the best way for the combination. A meeting was held by the oil ministry in March with
companies that are run by the state, and the companies were asked to produce a road map for
integration.

 

Reason to why a similar attempt failed

During the mid-2000s, the government also tried something similar. The efforts unraveled through the
opposition from some employees and companies.

 

Arising reactions

The Indian government strategy to invest in oil has generated some reactions from many stakeholders.
A study carried by Journal of Business management and economics concluded that although mergers in
the energy sector in India may not create immediate shareholder value, they will produce companies
that are in a better position to compete and adapt. A similar conclusion was also drawn by credit rating
company Fitch Ratings.

There has also been an adverse reaction. As it could be to HPCL disadvantage if the minority
shareholders are not given an open offer.

This move fulfills a plan that was first outlined in February. The plan was to create an Indian oil giant by
consolidating and merging the companies to form a company that can be compared to the international
rivals and this could weather price volatility. This merging will make oil and national gas Corp the
nation’s number 3 refiner after the Indian Corp. The stake is valued at 4.6 billion dollars.
With the creation of this giant company, India is looking forward to having a better chance to compete
in the increasing oil market with other big companies all over the world