Among the more interesting proposals in the Budget is the one relating to creating an integrated oil major in the public sector. The idea seems to be to merge the refining and marketing companies Indian Oil, Bharat Petroleum and Hindustan Petroleum, with ONGC and OIL India to create a monolith that can “match the performance of international and domestic private sector oil and gas companies”.
To be sure, this is not the first time someone in Government had this brainwave. A similar proposal was mooted almost a decade ago and the petroleum ministry even prepared a report which must now be gathering dust in Shastri Bhavan. It will be prudent to wait and see how far this idea evolves.
However, a public sector leviathan that straddles the exploration, production, refining and marketing of petroleum products is probably a bad idea. It will create a huge imbalance in the market even after accounting for the presence of Reliance Industries, Essar Oil and Shell. For instance, while the three PSUs together own about 53,000 retail pumps, the three private players will together own just about 5,000. And we’re not even talking about other infrastructure such as pipelines, depots, blending and bottling plants and so on. Then again, though they’re PSUs, the three have distinctly different cultures and marrying them might not be easy.
A mega merger seems grandiose on paper but the benefits are highly suspect. If the idea is to create world-class companies, the Centre could begin by granting each of these companies actual functional autonomy. It should bring down its ownership to less than 51 per cent and the PSUs should be encouraged to operate on market principles. That’s probably the way to go.
Raghuvir Srinivasan Senior Associate Editor